Chart of the Week
Aug 29, 2025
2 MIN READ
Private credit: Attractive returns, added diversification
Senior direct loans’ trailing three-year return has eclipsed the S&P 500’s long-term historical return.
authors
Direct lending performance eclipses long-term S&P return
- Institutions and individuals are turning to private credit for its yield premium and potential diversification benefits relative to public markets.
- Today’s higher interest rate regime has enhanced the return potential in private credit. Over the past three years, senior direct lending, the largest strategy within private credit, has returned 10.8% annualized, well above its historical average and even eclipsing the long-term historical return of the S&P 500.1
- Even if the Fed cuts rates over the next year consistent with market pricing, gross private credit yields would likely remain compelling, especially with U.S. equity valuations near a 25-year peak.
- Despite elevated interest expenses, borrower health within the private credit market remains strong. As of June, the direct lending default rate sat at 1.45%, down from 1.87% a year ago and well below the historical average of 2.75%.1
footnotes + disclosures
1. Cliffwater, as of June 30, 2025. Based on rolling three-year return of Cliffwater Senior Direct Lending Index.
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