What It Actually Takes to Grow a Private Credit Fund from $15M to $430M

When I joined Pelorus Capital Group in early 2020, the fund had $15 million in assets under management and a thesis that made most institutional lenders uncomfortable: cannabis real estate is a legitimate credit asset class, and the market is systematically mis-priced because of stigma, not fundamentals. Four years later, we crossed $430 million in AUM, delivered 13%+ net IRR to investors, and executed three transactions that had never been done before in the cannabis space. I led all of them.

I'm writing this not to celebrate what we built at Pelorus — that story is well told elsewhere — but to answer the question I get asked most often: how do you actually scale a private credit fund? Not in theory. Not in a pitch deck. In practice, when you're staring at a portfolio that needs to 29x and you have to figure out how.

What Most Managers Get Wrong About Scaling

The instinct of almost every emerging credit manager is to focus on deal flow. If we can just source better loans, in more markets, at higher volume — we'll grow. That instinct is not wrong, but it's insufficient. Deal flow is the easy part. The ceiling on any private credit fund is not the quality of its assets. It's the sophistication of its liabilities.

The ceiling on any private credit fund is not the quality of its assets. It's the sophistication of its liabilities.

When Pelorus was running a simple equity-and-high-net-worth structure, every dollar of growth required going back to individual investors. That's exhausting and fundamentally non-scalable. The moment we started thinking about the capital stack as a product — one that needed to be engineered as deliberately as the loan portfolio — everything changed.

The Capital Markets Ladder

We built institutional debt capability in stages, and each rung of the ladder unlocked a new investor tier. The first step was getting rated. We worked with Piper Sandler to structure and place what became the first publicly offered unsecured bond backed by cannabis real estate loans — rated BBB+ by Egan-Jones. That transaction didn't just raise capital. It validated the asset class in a way that no number of strong returns could have done on their own.

The second step was securitization. Working with Performance Trust, we closed a CRE CLO — again, the first of its kind in the cannabis space. A CLO structure brings cost-of-capital discipline that equity investors can never match. When you can borrow at SOFR plus a spread in the AAA tranche and earn double-digit yields on the assets, the math becomes compelling at institutional scale.

The third step was the A-rated secured bond — the highest investment-grade rating we'd achieved for any cannabis-adjacent instrument. Each step was not just a capital raise. It was a demonstration to a new audience that this credit was real, measurable, and defensible.

Underwriting at Scale: Why Proprietary Data Matters More Than Relationships

Relationship-driven lending works until it doesn't. In an emerging market — one where there are no CMBS comp sets, no established cap rate benchmarks, and significant variance in how states regulate the underlying businesses — you cannot rely on market convention. You have to build your own.

At Pelorus, we built what we called the Pelorus Data Project: a proprietary database pulling from over 100 data sources across all 50 states, tracking cannabis license activity, real estate values, operator performance, and regulatory changes. When we underwrote a loan, we weren't just evaluating the borrower. We were evaluating the market. That proprietary data capability is what allowed us to price risk accurately in an asset class where there was no established pricing convention.

Proprietary data is not a luxury in an emerging credit market. It's the only way to price risk accurately when there is no established pricing convention.

What 13%+ Net IRR Actually Required

The net returns look simple from the outside: lend at 14-16%, charge modest fees, deliver 13%+ to LPs. But the mechanics that produce consistent net returns at scale are not simple. They require portfolio construction discipline — concentration limits, loan-to-value guardrails, operator quality standards. They require covenant structures that give you early warning before a loan deteriorates. And they require the discipline to say no, often, even when deal flow is strong and capital is available.

The loans we didn't make mattered as much as the loans we made. In an asset class where operators could raise equity from retail cannabis investors willing to pay any price, we had to be willing to walk away from deals that didn't meet our credit standards — even when the borrower had other options. That discipline is harder than it sounds when you're managing an actively growing fund and investors want to see deployment.

The Moment It Became Institutional

The inflection point was the Piper Sandler bond. When one of the country's most respected mid-market investment banks agreed to underwrite a cannabis instrument — putting their name on a roadshow, taking it to institutional bond buyers — something fundamentally shifted. It wasn't just that we raised capital. It was that we had cleared the credibility threshold that separates specialty finance from institutional credit.

After that transaction, every conversation with institutional LPs got easier. Every bank that had previously declined to discuss working capital facilities started returning calls. The institutional imprimatur, once established, compounds in ways that nothing else does.

The Principles That Transfer

I left Pelorus in 2024 to found Seller Edge Capital, applying the same institutional credit discipline to a very different asset class: seller-financed business notes in the $40 billion small business acquisition market. The assets are completely different — small companies, owner operators, promissory notes rather than mortgages — but the principles are identical.

Build proprietary underwriting capability. Engineer the capital stack to match the growth thesis. Know your credit standards and defend them. Demonstrate institutional rigor early, before you need it. And understand that the ceiling on what you can build is always set by the sophistication of your liabilities, not the quality of your assets.

The specific market changes. The discipline does not.