Private credit returns leave public credit “out of the mix”

Investors should eschew public credit for private credit to achieve better returns, new research claims.

Alternative investment adviser and fund manager Cliffwater analysed public credit benchmarks alongside private credit model portfolios using its own indices, between 30 June 2013 and 30 June 2024.

Cliffwater’s newly launched Cliffwater Unlevered, Net-of- Fee Direct Lending Index (CDLI-U-NOF) recorded an annualised return of 7.23 per cent.

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In comparison, the SPDR Blackstone Senior Loan ETF produced annual returns of 3.31 per cent and the Morningstar LSTA US Leveraged Loan index returned 4.9 per cent.

“In today’s world, where there are seemingly too many asset classes competing for allocators’ capital, public credit – bank loans and high yield bonds – is likely expendable in favour of private credit which offers returns three to four per cent higher, after adjusting for fees,” said Stephen Nesbitt, chief executive of Cliffwater.

“By itself, that return difference more than justifies the liquidity give-up for going private, and with the advent of private credit vehicles like perpetual BDCs and interval funds, investors can come close to having both the higher return and comparable liquidity. That leaves public credit out of the mix.”

Read more: Private credit experts slam claims that sector does not offer higher returns

Nesbitt said that the data “strongly points to investors allocating most, if not all their credit allocation to private solutions” and suggested that the findings may be inconvenient for investment firms trying to blend private and public credit.

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