Principal Asset Management Plans Sharia-Compliant US Private Credit Fund for Gulf Investors

Principal Asset Management is planning to launch a US private credit fund structured to comply with Islamic prohibitions on interest, targeting Gulf family and institutional investors. The Iowa-based firm, which manages more than $590 billion, is working on the vehicle with a Saudi institution and intends to start fundraising later this year.

Matt Darrah, Principal’s head of credit, said the fund will lend to everyday US businesses in sectors such as early childhood education, plumbing, and automotive repair.

These areas were chosen because they generate steady cash flows and are resilient to economic downturns. The structure will require every transaction to be Sharia compliant rather than relying on a wrapper around conventional operations. Darrah noted that family offices, banks, and insurers in the region have faced strict barriers to US private credit because charging interest is prohibited under some interpretations of Islamic law.

Gulf sovereign wealth funds have increased allocations to private credit in recent years. Principal’s fund will also seek capital from investors in other predominantly Muslim countries in Asia. Darrah said the firm’s existing US private credit funds continue to show resilience.

“As a credit investor we’re always stress testing and thinking about the downside, but what I actually see in the portfolio is a lot of resiliency,” he said.