Era of Private Credit Returns Beating PE Is Nearing an End (1)

Returns from direct lenders beat their private equity counterparts in the second quarter, according to data compiled by State Street Corp., even as the easing of monetary policy by central banks looks set to dent the advantage.

“I expect the private debt outperformance will begin” reversing after the Federal Reserve began cutting interest rates, said Nan Zhang, head of product implementation and alternative investment research at the asset manager. “Private debt, especially floating-rate debt, typically benefits from rising interest rates.”

Looser credit conditions will begin to free up private equity’s ability to do deals again after a failure to ...