Developing an Enhanced Proxy Benchmark for the Private Debt Market

Seung Kul Lee and Hohyun Kim ()
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Seung Kul Lee: Seoul Business School, aSSIST University, Seoul 03767, Republic of Korea
Hohyun Kim: Department of Advanced Industry Fusion, Konkuk University, Seoul 05029, Republic of Korea

IJFS, 2025, vol. 13, issue 3, 1-17

Abstract: Institutional investors increasingly value alternative assets in strategic asset allocation, with private debt emerging as a key asset class. However, its shortage of market history has hindered the development of standardized proxy benchmarks. For that, many institutional investors still do not recognize or manage private debt as a distinct asset class. Thus, this study aims to develop an optimized benchmark that reflects the unique characteristics of private debt, thereby contributing to establishing private debt as an independent investment asset class for strategic asset allocation among institutional investors. This study seeks to address this gap by constructing a proxy benchmark for the Preqin private debt index, which, despite its comprehensive market coverage, has a three-month reporting delay. This study employs quarterly performance data for private debt indices, spanning 31 December 2006 to 31 March 2023, and is sourced from Bloomberg and the index providers’ websites. Using regression analyses with timely asset-based indexes, the research develops a multivariate model that integrates multiple indexes, demonstrating superior tracking performance compared to existing methods. The findings provide a practical framework for improving the recognition, management, and allocation of private debt in institutional portfolios, addressing the need for reliable and timely performance metrics in this growing asset class.

Keywords: strategic asset allocation; alternative investment; index; proxy benchmark; multivariate regression; private debt; leveraged loan; assumption testing (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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