Private debt, also called private credit, has become a booming asset class driven by the fast growth and increasing differentiation of the private equity industry. The rise in interest rates has further fueled the appeal of the typically floating rate debt, in particular, compared to longer duration high yield bonds. On the other hand, private debt comes with intransparency, illiquidity and significantly higher fees. What should we make of the risk/return profile of this relatively new asset class and what returns can investors reasonably expect?

• Private equity and venture capital are the most significant asset classes in the private markets universe, but private debt complements them as an essential pillar of the ecosystem.

• Specialized funds promise higher returns than are achievable in the syndicated high-yield and leveraged loan market with lower volatility.

• However, due to the opaque nature of the ecosystem, it can be challenging to develop a clear idea of the risk/return profile of the asset class.

• We have therefore taken a closer look at some of the literature and data available on this topic in order to at least roughly categorise the asset class and derive expected returns that can be integrated into our capital market assumptions.