News Digest: Will private credit returns match buyouts soon?

February 16, 2023

News Digest:

New research by Adam Street Partners suggests that private credit returns could soon touch the levels typically seen in buyouts. Given the current macroeconomic scenario, high quality private credit funds could potentially earn between 14 to 15% gross internal rates of return through quarterly cash payouts.


If one were to compare this with the private equity buyout space, the media net returns stood at 18%, says the research paper. It says the median buyout fund could be challenged to replicate 18% in today’s market even as average returns in the venture capital, which rose to 25% over the past decade, is witnessing renewed pressure in 2023. In 2007, private credit funds had $108bn in assets under management. By year-end 2022, forecasts indicate AUM of about $1.1 trillion.



The research further notes that claims loss avoidance could be achieved by private credit fund managers through four routes, viz., quality underwriting leading to top notch credit selection; a track record of loss avoidance across market cycles; a large deal funnel; and the ability to win deals of their choosing.



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