Benchmarking Private Credit for Portfolio Allocators: A Public Market Equivalent Approach

How private credit is benchmarked can determine whether it appears to outperform public credit. This article revisits recent claims that private credit has delivered little excess performance and that much of its reported value remains exposed to residual valuation risk. We argue that comparisons between drawdown fund total value-to-paid-in capital and buy-and-hold exchange-traded fund (ETF) returns do not answer the relevant question facing allocators because they ignore the timing of capital calls, distributions, and remaining net asset value. Using 2015–2020 vintage private credit fund cash flows from MSCI Private Capital Intel and the same indexes suggested by a recent paper, we construct cash-flow-matched public benchmarks and evaluate performance with Kaplan–Schoar public market equivalent and Direct Alpha measures. Senior direct lending vintages show positive median outperformance versus the Invesco Senior Loan ETF, with a median public market equivalent of 1.18× and Direct Alpha of 3.3% annually. Outperformance narrows under leverage-scaled public benchmarks and residual-value haircuts but generally remains positive, especially for subordinated debt vintages.