Structured & alternative-income investments
Equipment-Finance Funds
A pooled fund that buys business equipment and leases or finances it to operators, distributing the rentals and loan payments while the equipment depreciates toward a residual value.
An equipment-finance fund raises investor capital, buys business equipment such as trucks, medical imaging systems or construction machinery, and places it with corporate lessees under fixed-term contracts. Investors receive monthly distributions made up of lease rentals and loan payments, a substantial part of which is a return of their own capital because the asset is being consumed. The outcome depends on lessee credit and on the residual value the manager actually realises when the equipment comes back and is sold.
Rent and lease payments Truly passive
The labels above place this income type before you read a word. The first is the mechanism — how the money actually reaches you, whether by lending it out, owning a slice of something, renting an asset, licensing a right, selling an option or owning a business somebody else runs. The second says whether the income keeps arriving on its own once it is running, or whether it needs work from you to keep coming. Both are descriptions of how the thing is built, not verdicts on it.
How it works
The fund raises capital and acquires equipment that businesses need to operate but may not want to own outright: trucks and trailers, medical imaging systems, construction machinery, IT hardware, rail cars, marine containers, manufacturing lines. It places these assets with corporate lessees under contracts of fixed term. Two structures dominate. A true lease keeps both ownership and the residual value with the fund, so the fund's return depends on what the equipment fetches when the lease ends. A finance lease, or equipment finance agreement, is economically a loan: the lessee is acquiring the asset over time and takes ownership at the end for a nominal amount.
Underwriting runs on two tracks. Credit work asks whether the lessee can pay for the full term, drawing on financial statements, industry conditions, and how essential the equipment is to the lessee's own revenue. Asset work asks how fast the equipment depreciates and whether a functioning resale or re-lease market exists years out. Vendor and captive programmes, arrangements with manufacturers and equipment dealers, are how a fund sources volume without building its own sales force; the dealer supplies the lead, the fund supplies the capital.
Cash arrives monthly as lease rentals and loan payments, and most funds pass it through as monthly distributions. A large share of an early distribution is return of capital rather than income, because the equipment is being consumed as it generates cash. That is a mechanical fact of amortizing a depreciating asset, not a bonus.
A fund's life runs in phases: an offering period during which capital is raised, a reinvestment period in which incoming rentals are redeployed into more equipment, and a wind-down period in which the remaining portfolio is sold and capital returned. The remarketing decision at the end of each individual lease, whether to renew, extend, re-lease, or sell, is where the fund's residual value assumption is either proved or exposed. Exchange-listed alternatives exist in rail car, container, and aircraft leasing companies, which hold comparable assets but trade at a daily market price instead of locking capital into a closed structure.
What it pays
Distributions are usually quoted as an annualised rate on invested capital, but a meaningful share of that rate is the investor's own capital coming back as the equipment wears down, so the quoted figure is not a yield in the ordinary sense.
The underlying economics are the spread between the fund's cost of capital and the implicit rate built into its leases, plus whatever the equipment actually brings when it is sold at the end of its useful life to the fund. Leverage, applied at the fund level or against individual assets, amplifies both the reported distribution rate and the size of the loss when a lessee fails or a residual falls short.
Residual value assumptions are the swing factor in the whole structure. A fund that books optimistic resale values can report attractive economics for years, right up until the equipment is actually remarketed or sold and the assumption meets the market. Total return is therefore only knowable at wind-down, once residuals have been realised and capital returned in full, a process that often runs close to a decade from the first subscription.
Payment structures vary by contract: some leases are level-payment, others are stepped or seasonal to match a lessee's own cash cycle, which affects the timing though not necessarily the total of distributions. Fee-heavy programmes need a materially higher gross lease yield simply to return the investor's principal, which is why fee disclosure matters more here than in most income products.
Costs and taxes
Non-traded equipment leasing programmes have historically carried heavy upfront load: selling commissions, organisational and offering expenses, and acquisition fees, all taken before a dollar is deployed into equipment. Ongoing costs stack on top, including management fees, servicing fees, remarketing fees, and disposition fees, charged at both the fund level and the individual asset level.
US federal tax runs through a Schedule K-1. Depreciation, including accelerated and bonus depreciation where available, shelters early distributions so that cash paid out can exceed taxable income in the fund's first years. That shelter reverses as the equipment ages: taxable income rises later in the fund's life, and gain on the eventual sale of equipment is subject to depreciation recapture, taxed as ordinary income rather than at capital gains rates.
Because equipment sits wherever the lessees operate, K-1s can create filing obligations across multiple states. The tax characterisation also depends on contract form: sale-leaseback and finance-lease structures are treated differently than true leases, so two funds described in nearly identical terms can produce very different K-1s.
Inside an IRA, an equipment leasing programme can generate unrelated business taxable income, and fund-level leverage can add unrelated debt-financed income on top of that. This is one of the more common surprises for investors who hold these vehicles in a retirement account.
Liquidity and time commitment
Non-traded funds are illiquid by design. There is no exchange and no reliable secondary market, and any repurchase programme the sponsor offers is limited, discretionary, and can be suspended without much notice.
Fund lives commonly run several years of reinvestment followed by several years of wind-down, and that schedule can extend further if equipment proves hard to sell. Capital comes back as the portfolio runs off, not on request, which means the timing of an investor's exit is effectively the manager's decision, not the investor's.
Effort for the investor is low: quarterly reports, an annual K-1, and occasional consent solicitations are the whole of it.
Exchange-listed lessors and equipment finance companies are the liquid substitute, priced daily by the market with all the volatility that daily pricing implies. Where secondary sales of non-traded units happen at all, they occur through limited partnership secondary markets and typically clear at steep discounts to the fund's stated net asset value.
How it goes wrong
A lessee fails. Recovering equipment from a bankrupt operator means repossession, transport, storage, refurbishment, and resale, and the value realised is usually well below the book residual the fund had assumed.
Residual assumptions prove optimistic even without a default. Technology obsolescence in IT and medical equipment, or a cyclical glut in trucks, rail cars, or containers, can destroy resale values across an entire vintage of equipment at once.
Distributions funded from return of capital or from fund-level borrowing can look like yield right up until the wind-down reveals how much principal actually came back. Concentration in a single lessee, a single industry, or a single asset type turns a sector downturn into a fund-level loss with no diversification to absorb it.
Layered fees compound the problem, since a programme charging upfront load plus ongoing management, servicing, and disposition fees needs strong gross lease income simply to break even on principal. Depreciation recapture then converts the earlier tax shelter into ordinary income at exactly the point the investment is being unwound. And because bankruptcy courts can recharacterise a lease as a disguised security interest, the fund's legal rights to repossess and sell the equipment are not always as clean as the contract implies.
What to remember
- Monthly distributions include a substantial return of capital, especially early on, so the quoted distribution rate is not a true yield.
- Total return depends on the residual value the manager actually realises when equipment is remarketed or sold, and that is only known at wind-down.
- K-1 taxation shelters early distributions through depreciation, then reverses, with gain on sale taxed as ordinary income through depreciation recapture.
- Non-traded funds are highly illiquid, with capital returned only as the portfolio runs off over a multi-year reinvestment-then-wind-down cycle.
- Heavy layered fees mean gross lease income has to run well above breakeven just to return an investor's own principal.
- Lessee default, technological obsolescence, and cyclical oversupply can each destroy assumed residual values across an entire equipment vintage.
This page explains how the income type works, which does not change from week to week, so it deliberately carries no rate and no price. The links below go to the pages that hold the current figures for it, each one stamped with the date the data was pulled. Read the mechanism here first: the numbers there are far easier to judge once you know what they are measuring.
See the live numbers: Private Credit.
Frequently asked
Is the monthly distribution rate a yield?
What is residual value risk?
How is this different from leasing out equipment yourself?
Can these be held in an IRA?
Written for information only. Nothing here is investment, tax or legal advice, and no page on this site recommends buying or selling anything. Rules and tax treatment change; verify anything that matters with a professional who knows your situation. This explainer was drafted by a language model (claude-sonnet-5) from an editor-approved outline and fact sheet, under the rules set out in our editorial policy, and carries no market figures. Last updated Jul 29, 2026.