Private Credit Returns Beat Buyout Funds For a Second Straight Quarter
- High rates have juiced interest payments to direct lenders
- Dearth of dealmaking has hurt private equity fund returns
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Returns for private debt funds have beaten those of private equity for a second straight quarter, with higher interest rates juicing returns for direct lenders just as buyout funds are hit by an M&A drought.
Private debt funds returned 1.8% in the third quarter of 2023, the latest data available, while buyout funds delivered just 0.35%, according to the State Street Private Equity Index. Historically, investors have expected bigger returns from PE — with quarterly returns occasionally as high as 12% in State Street Corp.’s data — because of its riskier nature. But the status quo has been upended by high rates — a boon for private credit funds which mostly offer floating rate debt and can still get cash through regular interest payments.