We provide first evidence on the returns and risk characteristics of private credit indexes calculated by MSCI, Pitchbook, and Preqin. Broad private credit indexes have outperformed liquid credit markets in both absolute and risk-adjusted terms from 2001 to 2024. We develop a parsimonious two-factor benchmark model based on traded credit and equity factors, demonstrating that this model accounts for almost 90% of the time variation in private credit index returns. Exposure to the equity factor in private credit is significant, suggesting that models based solely on credit factors may overestimate the alpha in private credit. Among credit and equity benchmarks, our analysis indicates that leveraged loans and small-cap value equities provide the greatest explanatory power for the benchmark model, particularly in the more recent post-financial-crisis data. Additionally, we observe variability in the factor exposures and alphas across private credit sub-strategies, indicating that most of the asset class’s outperformance is driven by direct lending funds, while opportunistic and asset-backed lending have detracted from the performance of broad indexes.
Antti Suhonen,Aalto University School of Business
Juha Joenväärä, Aalto University School of Business