A new study takes what is called a “first look” at the aggregate performance of private credit funds.

Using data going back to 2004, the authors (two of whom are affiliated with Adams Street Partners) determine that private credit funds “have performed about as well, or better than, leveraged-loan, high-yield, and [business development company] indices.” Such funds also display a low correlation with benchmark indices, which suggests that they provide diversification vis-a-vis other credit strategies.

The paper, by Shawn Munday, Wendy Hu, Toias True, and Jian Zhang, begins with the observation that this asset class has of late been flying underneath the usual scholarly radar. There are commercial data providers who collect material on these funds, but “each has a unique approach to doing so, incorporates different potential biases, and captures only a subset of the private credit fund universe,” making life difficult for those who would study results.

The Database

For their study, Munday et al. use the Burgiss database. This takes in the performance of 476 funds. Among them are 155 direct lending funds. This allows Munday et al. to “develop a preliminary view of performance and risk across various private credit strategies.”

The Burgiss database is superior to others because due to its cash-flow level data sourced from limited partners, which is more informative than self-reported IRRs. Also, Burgiss has a high level of data integrity allowing precise analysis of fund and strategy performance.

This fund space took on a new role after the global financial crisis, and after two important regulatory responses to that, the Basel III accord setting capital requirements for banks, and the Dodd-Frank Act in the US. In reaction, banks cut back on their corporate lending operations. But growing companies still needed capital, so somebody was bound to step in and fill the void the retreating banks had left.