The Returns to Private Debt: Primary Issuances Versus Secondary Acquisitions
33 Pages Posted: 5 Oct 2018
Date Written: July 30, 2018
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: Suggested Citation