Private Credit Professionals Respond to Claims of Low Returns in Recent Study

Private credit professionals have strongly refuted a recent report that claimed private credit does not offer higher returns once fees and risks are considered. The report, released by the National Bureau of Economic Research (NBER) and based on data from 1992 to 2015, suggested that the risk-adjusted return on private credit investments is negligible.

Industry experts have criticized the study, calling it outdated and inaccurate. They argue that the private credit market has evolved significantly in the last decade, with a focus on senior secured debt and lower fees. Additionally, newer data sets show a substantial excess return after fees, contrary to the findings of the NBER report.

Cliffwater, an alternative investment adviser, conducted its own analysis using more recent data from 2004 to 2024. Their research indicates a significant annual excess return of approximately 600 basis points after fees. The firm’s CEO, Stephen Nesbitt, highlighted several weaknesses in the NBER analysis, including outdated data and inconsistent risk management approaches.

Private credit professionals emphasize that the market has matured and diversified since the period covered by the NBER report. They point out that private credit encompasses various finance solutions, each with its own risks and returns. The industry has become more liquid, diverse, and transparent, offering borrowers flexibility that traditional banks may not provide.

Overall, the private credit sector continues to deliver strong returns for investors, debunking the notion that it does not offer higher returns. With ongoing innovations and a more sophisticated market landscape, private credit remains a viable investment option for those seeking attractive risk-adjusted returns.