Risk-Adjusting the Returns to Private Debt Funds

Isil Erel, Thomas Flanagan and Michael Weisbach
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Isil Erel: Ohio State U and ECGI
Thomas Flanagan: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Private debt funds are the fastest growing segment of the private capital market. We evaluate their risk-adjusted returns, applying a cash-flow based method to form a replicating portfolio that mimics their risk profiles. Using both equity and debt benchmarks to measure risk, a typical private debt fund produces an insignificant abnormal return to its investors. However, gross-of-fee abnormal returns are positive, and using only debt benchmarks also leads to positive abnormal returns as funds contain equity risks. The rates at which private debt funds lend appear to be high enough to offset the funds’ fees and risks, but not high enough to exceed both their fees and investors’ risk-adjusted rates of return.

JEL-codes: G12 G21 G23 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-cfn
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Related works:
Working Paper: Risk-Adjusting the Returns to Private Debt Funds (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2024-06

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