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Private Debt Surges Past Private Equity: Key Insights

by Team Lumida
June 27, 2024
in Private Credit
Reading Time: 3 mins read
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Private Debt Surges Past Private Equity: Key Insights

Source: Wealth Management

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Key Takeaways:

  1. Private credit funds delivered nearly double the returns of private equity in Q1 2024.
  2. Higher interest rates boost private debt returns, making private equity less profitable.
  3. Institutional investors are shifting focus from private equity to private debt.

What Happened?

Private debt funds have significantly outperformed private equity funds, delivering nearly double the returns in the first quarter of 2024, according to MSCI. Institutional investors, including pensions and endowments, are now reducing their exposure to private equity and increasing investments in private debt. Higher interest rates are a major factor behind this shift.

While private equity funds struggle to sell owned companies, private credit funds benefit by charging more on loans.

Why It Matters?

Higher interest rates have turned the tide in favor of private debt. Private equity thrived on cheap borrowing costs and rising stock valuations, but those days seem numbered. Private equity distribution rates have slumped to 8.7% in Q1 2024, near five-year lows.

This decline has discouraged investors who previously enjoyed double-digit returns. In contrast, private credit funds now capitalize on higher loan charges, providing better returns and attracting more institutional money.

What’s Next?

Investors should closely watch interest rate trends and inflation data. Persistent inflation could continue to suppress private equity returns while benefiting private debt. Future Federal Reserve policies will play a crucial role.

If interest rates remain high, expect more institutional investors to shift towards private debt. Monitoring private equity’s ability to adapt to these conditions will also be critical. Keep an eye on distribution rates and sales activity for signs of recovery or further decline.

Source: Wall Street Journal
Tags: Institutional investorsInterest RatesMSCIPrivate debtprivate equity
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018