The Returns to Private Debt: Primary Issuances Versus Secondary Acquisitions

33 Pages Posted: 5 Oct 2018

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Grant Fleming

Continuity Capital Partners

Zhangxin Frank Liu

The University of Western Australia Business School

Date Written: July 30, 2018

Abstract

Private debt fund managers invest in debt positions of private companies through new issuances or secondary acquisition of loans. We examine which strategy performs best using data from over 400 investments into private companies located in 13 Asian countries between 2001 and 2015. Trading private debt delivers higher returns than buying-and-holding a primary issuance, conditional on country and industry factors, suggesting that institutional investors should permit fund managers investment flexibility in mandates to capture higher returns. Furthermore, a portfolio of private debt investments delivers excess returns to public markets over time, with excess returns affected by volatility, funding liquidity and the global financial crisis. We argue that an investment in Asian private debt improves risk-adjusted returns for a global fixed income and/or emerging markets portfolio.

Keywords: Private Debt, Performance, Trading Strategies, Excess Returns, Volatility, Credit Risk, Funding Liquidity

JEL Classification: G23, G24

Suggested Citation

Cumming, Douglas J. and Fleming, Grant Alan and Liu, Zhangxin (Frank), The Returns to Private Debt: Primary Issuances Versus Secondary Acquisitions (July 30, 2018). Financial Analysts Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3248422

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Grant Alan Fleming

Continuity Capital Partners ( email )

GPO Box 314
Canberra, Australian Capital Territory 2601
Australia

Zhangxin (Frank) Liu (Contact Author)

The University of Western Australia Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

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