Private credit expert Tarek Omar challenges fund fees in new direct-lending analysis

MELBOURNE, 8 October 2026 — Private credit expert Tarek Omar of Royce Stone Capital is calling on sophisticated investors to look beyond a fund's headline distribution rate and examine how much of the borrower's payments reaches them, and who controls the decisions when a loan runs into trouble.

In his new article, How direct lending returns beat private credit funds, Omar argues that funding selected loans directly can offer greater visibility and a larger share of loan income for investors with the capital and capability to take on the responsibility.

"Every layer between the borrower and the investor takes a share of the return," Omar writes.

His argument centres on a distinction that a headline yield cannot explain: the difference between owning units in a lending fund and choosing an individual loan, its borrower and its security.

Look at what the borrower pays, not just what the investor receives

Omar challenges investors to examine the economics between those two figures. Depending on the fund structure, management and performance fees, borrower-paid establishment fees and retained interest margins can affect how income is divided.

In the direct-lending model he describes, the investor can examine the individual transaction and the proposed allocation of its income before deciding whether to participate. The opportunity is to retain more of that income while choosing which loans to fund, rather than treating the fund's distribution rate as the only available outcome.

Direct lending has costs too, including origination, legal work, administration and recovery. A meaningful comparison accounts for those costs and credit losses, rather than comparing an individual loan's gross rate with a fund's net distribution.

Choose the loan and understand the recovery plan

The article describes a deal-by-deal assessment of the borrower, use of funds, valuation, security ranking and repayment strategy. Investors can decline a transaction that does not meet their requirements instead of delegating every lending decision to a pooled fund manager.

That difference extends beyond selecting an interest rate. The loan documents determine the lender's rights, the security available and the steps open to it if the borrower cannot repay. Reviewing those arrangements before funding is central to the control Omar advocates.

He uses second mortgages to illustrate why financial capacity matters. An investor able to fund a payout of the first mortgage may have options in a default that an investor without that additional capital does not.

Such a step depends on the legal arrangements and increases the capital committed to the exposure. It does not guarantee recovery. Default interest also has to be collected, and an individual loan can concentrate risk that a diversified fund spreads across borrowers.

Omar acknowledges that well-run private credit funds serve a purpose. His argument is that investors equipped to assess and manage individual transactions should examine the direct route as well, weighing net returns against the work, capital and risk involved.

Read Tarek Omar's full article

About Royce Stone Capital

Royce Stone Capital is a Melbourne private-capital and corporate-advisory business. The company describes its work as sourcing and structuring private lending transactions for wholesale investors, including family offices and high-net-worth investors. It has a commercial interest in direct lending.

Website: Royce Stone Capital

This release provides general market commentary, not personal investment advice or a promise of investment returns.