Tax optimization is a material consideration when launching any private fund, but private credit strategies entail the particular challenge of ensuring earnings of non-U.S. investors are not treated as income effectively connected (ECI) to a “trade or business” (e.g., loan origination) in the U.S. Unfortunately, there is no single, universal approach that is best for avoiding ECI. Instead, fund managers are forced to weigh the pros and cons of several different fund structures to optimize the tax treatment of their private credit funds. To provide guidance on navigating the tax implications on non‑U.S. investments in U.S. private credit funds, Strafford CLE Webinars hosted a program featuring Proskauer partners Christine Harlow and Janicelynn Asamoto Park. This second article in a two-part series discusses the challenges of using hybrid funds for private credit strategies and details several fund structures that can mitigate potential tax harm. The first article described the ECI risks faced by non‑U.S. investors and the challenges with conducting a private credit strategy without operating as a trade or business in the U.S. See “Trends in Private Credit Structures, Terms and Adoption Amidst Its Growth During a Challenging Market” (Apr. 6, 2023).