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ISSUE 93 | MAY 2024
Private credit experts slam claims that sector does not offer higher returns PRIVATE credit professionals have hit back at a recent report which claimed that private credit does not offer higher returns once fees and risks have been taken into account. Last month, three academics published a paper, released by the National Bureau of Economic Research (NBER), which found that the risk-adjusted return on $1(£0.80) of capital invested in private credit funds is “indistinguishable from zero”. The claim was based on an analysis of the risk-adjusted returns of private debt funds originated between 1992 and 2015, using the Burgiss-MSCI database. However, industry professionals have slammed the research, calling it outdated and incorrect. One private credit fund manager, who requested anonymity, told Alternative Credit
Investor that the 19922014 sample set “does not reflect the dramatic changes to the private credit market over the last 10 years.” “Private funds today are much more focused on senior secured debt with lower fees,” the fund manager said. “They also discounted risk using public equity returns. “In particular, the Cliffwater analysis –
which uses a much more recent sample set (2004 to 2024) and a more conventional risk measurement tool – shows approximately 600 basis points of annual excess return after fees.” Cliffwater is an alternative investment adviser and fund manager which also conducts its own research. The firm’s chief executive Stephen
Nesbitt published a response to the NBER analysis, claiming that the paper suffers “at least four weaknesses”. These include the outdated time period, a lack of transparency in data collation, and an “inconsistent” approach to risk management. Nesbitt added that “with a few exceptions, those managing private debt portfolios today are very different >> 4