Risk-Adjusted Private Debt Fund Performance and the Term Structure of Alphas (previously "Uncovering the Public and Private Components of Private Debt Returns"

66 Pages Posted: 9 Jan 2023 Last revised: 14 Nov 2023

See all articles by Pascal Böni

Pascal Böni

Tilburg University; Tilburg School of Economics and Management

Frans de Roon

Tilburg University - Department of Finance

Date Written: January 15, 2023

Abstract

We use novel data to estimate risk-adjusted returns on a fast growing and increasingly important new asset class: private debt. Studying funds’ time-series and cross-sectional properties, we find annual alphas over six percent. Importantly, we show that interim private debt fund returns are fundamentally distinct from the J-curve observed in private equity: When sorting on a fund’s lifecycle, we find a downward sloping term structure of fund returns and alpha. The latter amounts to an annualized 8.2% during a private debt fund’s early lifetime and more than halves to 3.9% during the late stage of its life, with exposure to public factors that are lowest during the early life stage. Private debt fund returns are left skewed, largely driven by higher downside-betas than upside-betas and because they can be characterized as portfolios that are long in high yield bonds and stocks and short in investment grade bonds.

Keywords: Private Market, Private Debt, Returns, Performance, Skewness, Value at Risk, Expected Shortfall, Term-Structure

JEL Classification: G11, G12, G20, G23, G30

Suggested Citation

Böni, Pascal and de Roon, Frans A., Risk-Adjusted Private Debt Fund Performance and the Term Structure of Alphas (previously "Uncovering the Public and Private Components of Private Debt Returns" (January 15, 2023). Available at SSRN: https://ssrn.com/abstract=4319347 or http://dx.doi.org/10.2139/ssrn.4319347

Pascal Böni (Contact Author)

Tilburg University ( email )

Warandelaan 2
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Tilburg, Noord-Brabant 5037 AB
Netherlands
+41793582813 (Phone)
5000 (Fax)

HOME PAGE: http://www.tilburguniversity.edu

Tilburg School of Economics and Management ( email )

Tilburg, 5000 LE
Netherlands

Frans A. De Roon

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 1 3466 8361/3025 (Phone)
+31 1 3466 2875 (Fax)

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