Performance of Private Credit Funds: A First Look

Abstract

Although private credit funds have rapidly grown into a stand-alone asset class over the last decade, little is known about the aggregate performance of these funds. To provide a first look at absolute and relative performance, the authors use the Burgiss database of 476 private credit funds with nearly $480 billion in business development companies committed capital, including a subset of 155 direct lending funds. They review the recent trends within private credit, provide an overview of various strategies, describe returns since 2004, and compare private credit with several benchmark indices in order to develop a preliminary view of performance and risk across various private credit strategies. Measures of absolute performance reveal IRRs (internal rates of return) that are positive for the top three quartiles across all strategies. The leverage loan index provides the best fit as a benchmark across most private credit strategies. Measures of relative performance (PMEs) suggest that private credit funds have performed about as well, or better than, leveraged-loan, high-yield, and business development company indexes. Direct lending funds have relatively low beta and positive alpha compared with the leveraged loan or high-yield indices. In addition, direct lending funds’ low correlation with benchmark indices may indicate diversification benefits relative to other credit strategies.