How to Compare Private Lending Funds: A 10-Point Scorecard for Accredited Investors

Most accredited investors evaluate private lending funds on two variables: yield and manager reputation. Both matter — neither is sufficient on its own. A fund can advertise an attractive yield while taking on risks that stay invisible until a market stress event actually arrives. The ten-point scorecard below gives you a structured way to compare any private lending fund, and to separate disciplined operations from ones that simply look attractive on the surface. At the end, we’ve scored LBC Capital against our own framework — including the point where we think investors should push hardest, on us and on anyone else.

Point 1 — Net Realized Yield, Not Projected

Start with what a fund has actually paid, not what it promises to pay. Ask for the trailing twelve-month net yield to investors, after all fees, and the net internal rate of return since inception. Be skeptical of any fund that leads with a projected or gross figure instead. A fund with a four-year record of 8.7% net realized yield tells you more than one promising 10% going forward.

Point 2 — Maximum LTV Policy and Actual Adherence

Every fund states a maximum loan-to-value ratio, typically 65–75% for first-lien private lending. The real question isn’t the stated policy — it’s whether the portfolio reflects it. Ask for the current portfolio’s weighted average LTV. If the stated maximum is 70% but the actual average runs 74%, either the policy isn’t enforced or the stated ceiling isn’t the real constraint. The average should sit materially below the stated maximum, not hug it.

Point 3 — Default and Loss Rate History

Ask for the fund’s default rate since inception, by loan count and by dollar volume — specifically, what share of loans have ever gone 90 or more days past due, which is the standard non-performing threshold (a shorter 60-day delay is more properly a watch-list trigger, not a default). Also ask for the recovery rate on each default: how many cents on the dollar did the fund actually recover? Zero reported defaults since inception isn’t automatically reassuring — the fund may be young, or it may be extending troubled loans rather than disclosing them. A fund with a 2% historical default rate and 98-cent recovery is demonstrably in better shape than one with no reported defaults and no transparency about how it categorizes loan stress in the first place.

Point 4 — Portfolio Transparency

Does the fund provide a full loan tape — property type, location, LTV, loan size, origination date, and maturity date for every loan — or only aggregate averages? Aggregate metrics can hide concentration risk, individual loan problems, and portfolio drift that a line-by-line view would surface immediately. Full loan tape access, or genuinely detailed loan-level quarterly reporting, is the mark of a manager with nothing to hide. Reading a fund’s annual report closely is where this transparency (or its absence) usually shows up first.

Point 5 — Independent Audit

Annual audited financial statements from a credentialed, independent CPA firm aren’t optional — they’re the baseline. Ask who audits the fund, when the last audit completed, and whether the auditor’s opinion carries a going-concern qualification. Realistically, for a fund this size, a nationally recognized firm with specific fund-audit experience is the meaningful bar — the handful of true Big Four firms mostly serve much larger alternative investment vehicles, so “Big Four or nothing” sets an unrealistic standard that doesn’t actually track audit quality at this scale. What matters more is whether the audit reviews the fund’s fair value methodology: how non-performing loans get valued, and whether that valuation is independent of the manager’s own judgment.

Point 6 — Third-Party Servicing and Administration

The person who originates a loan shouldn’t be the same person servicing it, collecting payments, and managing defaults. Third-party loan servicing gives an independent check on payment status. A third-party fund administrator — rather than the manager calculating its own NAV — adds the same kind of independence to investor reporting. Ask directly who services the loans and who administers investor records. “We do both ourselves” is a real governance gap, not a neutral answer.

Point 7 — Redemption Terms

Private lending funds are illiquid by design; the question is how illiquid, and on what terms. Typical structures run quarterly redemption windows, 30–90 day notice periods, and a 10–20% quarterly redemption gate. Score lower for 180-day notice periods, annual-only windows, or a gate that’s actually been triggered historically. If a fund has ever suspended redemptions, ask exactly why and for how long — a suspension that protected capital during genuine stress reads very differently from one that papered over a liquidity mismatch nobody disclosed beforehand.

Point 8 — Fee Structure Clarity

You should be able to calculate total fee drag from the offering documents without a finance degree. A typical structure: 1.0–1.5% annual management fee, plus 0.25–0.5% in fund-level expenses, plus whatever happens to origination fees — do they stay with the manager, or flow through to the fund? A 1.5% management fee combined with origination fees the manager keeps for itself can push total economic cost toward 2.5% or more. Net yield is what matters in the end, but you can’t evaluate it fairly without seeing the full cost stack behind it — which is exactly what a PPM’s fee section is supposed to lay out in full.

Point 9 — Geographic and Property-Type Concentration

A reasonable rule of thumb: no more than about 60% of a well-diversified private lending portfolio in a single state, and no more than roughly 40% in a single metro area — these are sensible benchmarks, not a regulatory standard, so treat them as a starting point for a conversation rather than a pass/fail test. Ask for a breakdown by state, metro area, and property type. A fund concentrated in one state is taking on correlated risk — a regulatory shift, an insurance-market disruption, a regional downturn — even when that state is a defensible, well-understood market. This is the point worth applying to single-market managers, including us: LBC Capital’s underwriting strength comes from deep, California-specific expertise, but that same focus is a concentration an investor should ask about directly rather than take as automatically offset by our local knowledge. Ask any single-state fund, ours included, exactly what share of the current portfolio sits in that one state before treating specialization as a complete substitute for diversification.

Point 10 — Manager Track Record Across Market Cycles

Has the management team actually operated through a real downturn? The 2008–2009 financial crisis, the 2020 COVID dislocation, and the 2022–2023 rate spike each stressed private lenders in different ways, and a team that lived through any of them has institutional knowledge a benign market can’t teach. Here’s our honest answer for this one: LBC Capital’s operating history runs back roughly fifteen years, which covers both the 2020 dislocation and the 2022–2023 rate cycle, but predates the firm’s founding for 2008–2009 — so ask us specifically what our extension rate looked like and whether any loans reached foreclosure during the cycles we did live through, the same way our loan committee process is built to answer that question for any individual loan.

Where This Leaves the Comparison

No fund will score a clean ten across every point, and a manager who claims otherwise is telling you less than a manager who tells you exactly where the real trade-offs sit. Transparency across all ten — including an honest answer on the points that don’t flatter the pitch — is the actual minimum standard worth expecting before committing multi-year capital.

Frequently Asked Questions

Which single point on this scorecard matters most?

Portfolio transparency (Point 4) tends to be the gating factor, because it’s what lets you verify every other point. A fund that won’t share loan-level detail makes it impossible to confirm whether its stated LTV discipline, default history, or concentration levels are actually true rather than simply asserted.

Is a fund with zero historical defaults automatically the safer choice?

Not necessarily. Zero defaults can mean disciplined underwriting, or it can mean a young fund that hasn’t been tested yet, or a manager extending troubled loans rather than recognizing them. Ask how the fund defines and discloses loan stress before treating a clean default record as proof of quality on its own.

How much should single-state concentration count against a fund?

It depends on what you’re buying it with. Deep, specialized knowledge of one state’s market and legal environment is a genuine strength, but it doesn’t substitute for diversification — it’s a trade-off to weigh deliberately, which is why this scorecard treats it as its own point rather than folding it into “manager quality.”