Defined Benefit
Insurance Assets
Nonprofit

Private Credit Returns Exceed Those of Leveraged Loans

Private Credit Returns Exceed Those of Leveraged Loans
clock
1 min 34 sec

Private credit performance varies across sub-asset class and underlying return drivers.

Key trends in private credit
  • Over the past three years, the asset class has generated a net IRR of 11.8%, outperforming leveraged loans as of June 30, 2023.
  • It has also outperformed over longer time periods, with a net IRR of 9.5% over the last 20 years, compared to 5.3% for leveraged loans and 7.2% for corporate high yield.
  • Higher-risk strategies have performed better than lower-risk strategies.
  • Private credit remained in high demand across Callan’s investor base, and a number of large pensions are looking to increase their existing private credit allocations from 2%–3% to 5%–10%.
  • While we always work to build out diversified client portfolios, we think there is particularly interesting relative value in upper middle market sponsor-backed lending, asset-based lending, and opportunistic/special situations.
  • Callan is seeing an uptick in stress for some individual names in direct lending portfolios due, in many cases, to a combination of input cost inflation and increased interest expense burden.
  • Continued 3Q23 rate rises across the yield curve have made private credit even more attractive than in the past.
  • Traditional lenders have not reentered the market in a meaningful way, allowing private credit to expand its opportunity set into larger companies, which are better credits but where loans still command high rates.
private credit
  • With slight increases in default rates and rating agencies predicting further increases, both opportunistic (flexible) credit funds and dedicated distressed credit funds are seeing more investor interest.
  • To foster ease of limited partner access and ongoing administration, more private credit general partners are launching evergreen structures and other legal structures.
  • Based on the success of traditional private credit, more niche and targeted strategies are being launched such as legal assets, leasing, various royalties (pharma, music), and asset-backed industry-specific funds (shipping, energy).
  • Finally, we are seeing a wave of consolidation across private credit asset managers as entities look to build out diversified product offerings and scale their businesses.
private credit

Disclosures

The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to any affiliate firms, or post on internal websites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.

Share
Share on linkedin
Share on facebook
Related Posts
Public Markets

Historic Market Volatility and Our 10-Year CMAs

Jay Kloepfer
Why we plan to make no changes to our 2025 Capital Markets Assumptions.
Public Markets

Big Retreat for U.S. Equities; Fixed Income Rebounds

Kyle Fekete
An update on how global markets fared in 1Q25.
Private Markets

How Lenders See NAV Loans and What Private Credit Investors Need to Know

Sarie Diloné
How NAV loan lenders view net asset value financings.
Private Markets

Risks of NAV Loans: What Limited Partners Should Consider

David Wong
A guide for limited partners on the risks of NAV loans.
Private Markets

What Institutional Investors Should Know About NAV Loans

Sarie Diloné
A guide to net asset value (NAV) loans.
Private Markets

Private Credit Gains in 3Q24 but Lags a Benchmark

Constantine Braswell
An update on the latest private credit activity.
Public Markets

Another Stellar Year for Stocks; Mostly Positive Gains for Bonds

Kyle Fekete
Callan expert analyzes the global markets in 4Q24.
Private Markets

Private Credit Managers Outperform Leveraged Loans

Daniel Brown
Callan experts analyze private credit performance in 3Q24.
Public Markets

Stellar Markets Across Asset Classes

Kyle Fekete
Callan expert assesses the global markets in 3Q24 and the outlook heading into the election.
Private Markets

Nonprofits: Same Mission, but New Approach to Allocations

Tony Lissuzzo
Callan expert discusses changes in nonprofit allocation trends over the last 20 years.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.