How the rich use insurance to invest in private credit without steep tax bills

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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

Private credit has exploded in popularity among investors, with the market soaring from $1 trillion in 2020 to $1.5 trillion at the beginning of 2024, according to alternative data provider Preqin. The firm expects this figure to reach $2.6 trillion by 2029.

But private credit investing comes with a serious catch. The returns from direct lending are taxed as ordinary income, which has a top federal tax rate of 40.8%, rather than long-term capital gains, for which rates top 23.8%.