High interest rates, volatile stock markets could prime private credit to outshine private equity again

[SINGAPORE] Funds that invest in private credit globally may be poised to beat those for private equity (PE) again this year. That is especially if interest rates remain high while exit opportunities in stock markets are stymied by volatility.

An Apr 29 report by index provider MSCI shows that private credit funds generated 6.9 per cent last year, exceeding the PE funds’ return of 5.6 per cent. 2024 marked the third straight year of outperformance.

A relatively new asset class, private credit began as a source of liquidity when the global financial crisis of 2008 caused high-yield and syndicated loan markets to seize up. Demand for private credit has been growing, as tighter regulations make it more onerous for banks to lend to companies.