Private Credit: Why We Believe ‘Now’ Is the Time to Invest
Private markets and market timing are two phrases that typically do not belong together. Private market vehicles can generate premium returns over publicly traded markets with lower volatility1 in large part because they take away the investors’ ability to precisely time when the money comes in and out. That said, any investor is going to ask why now? when making a new investment. This is good governance and merits a serious response. So, let’s dive into some of the reasons why we believe investors should put their money into private markets, specifically private debt, now.
Reasons to consider investing in private credit now
Well, firstly when it comes to private credit, the numbers don’t lie. When we compare credit vintage by vintage against the public market equivalent in the syndicated bank loan market, the private debt market has produced a higher internal rate of return (IRR) every single vintage.2
To be fair, an IRR is a total outcome, which is arguably the most important way to assess investment success, but many investors are accustomed to viewing performance and feeling risk through the lens of time-weighted returns. That is month-over-month or year-over-year return assuming a constant amount of money invested. On this front, the public market does only a little better. Over the last 15 years, the Cliffwater Direct Lending Index, a representative benchmark for private credit, has outperformed the Credit Suisse Leveraged Loan Index 8.71% to 3.95%3. And, of the last 15 calendar years, the private credit market has outperformed in all but one4. To us, this shows that rare is the time NOT to invest in private credit relative to public credit markets.