Private Debt: Volatility, Credit Risk, and Returns

42 Pages Posted: 22 May 2015 Last revised: 20 Aug 2016

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Grant Fleming

Continuity Capital Partners

Zhangxin (Frank) Liu

The University of Western Australia Business School

Date Written: March 12, 2016


We examine the performance of investments made by private credit fund managers into over 440 private companies in 13 Asian countries from 2001 to 2015. We show that the returns to private debt investments are relatively uniform across size, country and industry despite diversity in legal and economic system, size and age of credit markets. We compare the returns to two investments strategies commonly adopted by credit fund managers – buy-and-hold and secondary trading strategies. We find that strategies which involve buying/selling private debt on the secondary market deliver higher returns than a strategy of buying-and-holding a primary issuance. Finally, we conduct time series analysis of the variation in the performance of private debt investments. We build a private credit return index from the underlying loan data and calculate excess returns to private debt investments. Excess returns are positive and stationary over time. Excess returns are positively related to volatility (as measured by ΔVIX) and to credit risk (ΔTED spread) but are not influenced by market liquidity.

Keywords: Private debt, performance, trading strategies, excess returns, credit risk, liquidity, volatility

JEL Classification: C53, D82, G23, G24

Suggested Citation

Cumming, Douglas J. and Fleming, Grant Alan and Liu, Zhangxin (Frank), Private Debt: Volatility, Credit Risk, and Returns (March 12, 2016). Asian Finance Association (AsianFA) 2016 Conference, 29th Australasian Finance and Banking Conference 2016, Available at SSRN: or

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

HOME PAGE: http://

Grant Alan Fleming (Contact Author)

Continuity Capital Partners ( email )

GPO Box 314
Canberra, Australian Capital Territory 2601

Zhangxin (Frank) Liu

The University of Western Australia Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009

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