The current higher interest rate environment has helped private debt funds generate better returns for investors than private equity buyout funds for the second quarter running, according to a report by The Business Times.
The report cites the State Street Private Equity index as revealing that with buyout activity remaining subdued, buyout funds delivered just 0.35% in the third quarter of 2023, someway behind the 1.85% returns generated by private debt funds in the same period.
While higher interest rates have benefitted private credit funds, which mostly offer variable rate debt and generate cash from regular interest payments, buyout funds have struggled due to higher debt-servicing costs and the tough macroeconomic climate. Funds have also been reluctant to sell assets at reduced valuations and return cash to investors leaving this same investors with less cash to reinvest in new investment vehicles.
