Essentials of Private Credit

Private Credit: What You Need to Know

Growing Demand

Privately held companies focused on growth and transformation have increasingly turned to private credit as a source of capital. Working with non-bank lenders, these companies are seeking to meet their capital needs more efficiently through direct loans.

Defensive Income

Private loans are typically senior secured with meaningful cushion below in the form of junior debt and equity. Also, they typically offer floating rate coupons. These features aim to provide investors with principal preservation and high income potential.¹

Core Allocation

When added to a traditional balanced portfolio of stocks and bonds, private credit can offer meaningful diversification and improve risk-return potential.²

The Basics of Private Credit

Publicly Syndicated Loans

Every business needs capital—to expand, operate, acquire a competitor, or pursue new market opportunities. Traditionally, companies borrow money from commercial banks. These banks typically sell (or “syndicate”) these loans or bonds to a large group of lenders who will own or trade these securities.

Private Credit

Private credit can offer companies a more direct and efficient way to access capital. Private credit managers raise funds directly from investors and lend to corporate borrowers in transactions that often involve a private equity firm. This direct approach—with no bank in the middle—can result in greater efficiency, confidentiality, certainty in execution, and flexibility in terms of structure for the borrower. For the investor, it can lead to stronger documentation, principal preservation, and ultimately more attractive returns.

Private Credit at the Core

Historically, private credit has helped to enhance returns, reduce volatility, and improve the income potential of traditional investment portfolios. For investors seeking defensive positioning with return potential in the face of interest rate volatility, inflation, and continued uncertainty in public markets, these characteristics may be attractive.

60/40 Portfolio

Annualized Return	8.9%
Annualized Volatility	11.0%
Current Yield	2.9%

Portfolio with a 20% Private Credit Allocation

Annualized Return	9.9%
Annualized Volatility	10.2%
Current Yield	4.5%

Source: Bloomberg, Morningstar, Cliffwater, as of 12/31/2023. As commonly used in the industry, the 60/40 portfolio is 60% allocated to the S&P 500 index and 40% is allocated to the Bloomberg US Aggregate Bond index. Private Credit is represented by the Cliffwater Direct Lending Index. Past performance does not predict future returns. The information provided herein is presented for educational purposes only, is solely an indication of the historical experience of certain asset classes based on publicly available indices and benchmarks during a fixed period, and does not reflect the experience or return to any Blackstone client, fund, or portfolio, the return of any investment by a Blackstone fund or other client, or the return to any investor in any Blackstone fund.

There can be no assurance that any Blackstone fund, other investment, or any asset allocation will achieve its objectives or avoid substantial losses, or that alternative investments will generate higher returns than other investments. The information presented should not be construed as financial or investment advice, or relied on when making an investment decision. Investors should consult their financial advisor to determine what private markets allocation, if any, is most appropriate for them in light of their financial profile. Actual returns achieved by a fund or product investing in any asset class presented herein may be materially lower. The indices and benchmarks reflected herein are not representative of all investments in the applicable asset classes, the performance of such indices and benchmarks in periods other than that the period from October 2015 to December 2023 shown herein may differ materially, and it should not be assumed that any trends shown will continue. October 2015 is the inception date of the Cliffwater Direct Lending Index. Annualized returns and volatility are calculated based on the quarterly returns over the period from October 2015 to December 2023. The annualized returns shown do not necessarily consider fees and expenses, which are typically borne by the investor and may materially reduce returns. The yield on the portfolio with a private market alternative allocation was calculated using the annualized S&P 500 Dividend Yield, the annualized Bloomberg US Aggregate Bond Yield, and the annualized Cliffwater Direct Lending Index quarterly income.

Private Credit Landscape Today

Private credit has expanded rapidly for years, in part due to bank consolidation and regulatory change in the aftermath of the Global Financial Crisis. Today, private credit represents more than 25% of the US market for below-investment-grade credit, up from 5% in the mid-2000s, and plays an important role in financing large transactions.³

This trend has been largely driven by private equity activity and companies that are seeking more flexible capital solutions.

Private Credit’s Outperformance Over Time

Historically, private credit has outperformed traditional credit segments like high yield bonds and leveraged loans, in part reflecting the premium borrowers pay for the efficiency, confidentiality, and flexibility of private capital.

Annual Returns of Fixed Income Key Indices Ranked in Order of Performance (2017-2023)

2017

2018

2019

2020

2021

2022

2023

Total Return

8.6%

7.5%

4.1%

3.5%

1.1%

0.8%

8.1%

1.8%

1.4%

0.4%

0.0%

-2.1%

14.3%

9.0%

8.7%

8.6%

5.2%

2.2%

7.5%

7.1%

5.8%

5.5%

3.1%

0.5%

12.8%

5.3%

5.2%

0.0%

-1.5%

-1.7%

6.3%

1.5%

-0.8%

-7.8%

-11.2%

-13.0%

13.4%

13.3%

12.1%

5.5%

5.1%

4.3%

8.9%

4.8%

4.6%

1.7%

1.3%

1.1%

Private Credit
1‑3 Month T‑Bill
Treasuries
Investment Grade Bonds
Leveraged Loans
High Yield

Total Return

8.9%

4.8%

4.6%

1.7%

1.3%

1.1%

Source: Morningstar, Cliffwater. As of December 31, 2023. Represents the annual returns for the respective calendar year, ranked in order of performance. The asset classes presented are based on the following indices: Cliffwater Direct Lending Index for Private Credit, Bloomberg US Corporate High Yield for US High Yield, Bloomberg US Aggregate Bond Index for US Investment Grade Bonds, Morningstar LSTA US Leveraged Loan Index for US Leveraged Loans, Bloomberg U.S. Intermediate Treasury Index for Treasuries, Bloomberg U.S. Treasury Bill 1-3 Month Index for 1-3 Month T-Bill. Past performance does not predict future returns.

There can be no assurance than any alternative asset classes will achieve their objectives or avoid significant losses. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of, future events or results. The volatility and risk profile of the indices is likely materially different from that of a fund. The indices employ different investment guidelines / criteria than a fund and do not employ leverage; a fund’s holdings and the liquidity of such holdings may differ significantly from securities comprising the indices. The indices aren’t subject to fees / expenses, and it may not be possible to invest in the indices. The indices’ performance has not been selected to represent an appropriate benchmark to compare to a fund’s performance, but rather is disclosed to allow for comparison to that of well-known and widely recognized indices. A summary of the investment guidelines for the indices are available upon request. The indices are not necessarily the top performing indices in the given asset class and recipients should consider this when comparing the performance of any fund or investment to that of the indices. Total return is calculated over the period January 1, 2017 to December 31, 2023.

Key Reasons Borrowers Select Private Lending⁴

Efficiency of execution
Flexible structuring
Maintenance of confidentiality
Greater certainty of terms
Fewer public disclosure requirements

A CASE STUDY

Why Borrowers Go Private

Speed, simplicity, and flexibility: The ability of private lenders to commit capital quickly at scale can be attractive to borrowers. In the case of Park Place Technologies, a leading provider of third-party maintenance services for data center hardware, Blackstone Credit & Insurance leveraged its industry expertise and strong relationship with the private equity sponsor to lead a $2 billion loan package in March 2024. Park Place also participates in Blackstone’s Value Creation Program, where the company benefits from numerous introductions that created synergies.

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Capital is at risk and investors may not get back the amount originally invested.
Diversification does not ensure a profit or protect against losses.
Source: Bloomberg (“High Yield”) and Pitchbook LCD (“Leveraged Loans”) as of March 2024. Preqin (“Private Credit”) as of September 2023, which is the latest data available. Private Credit market size based on AUM. Total addressable US sub-investment grade credit market defined as the aggregate of the US high yield bonds, US leveraged loans and North American private credit markets. Leveraged loans refer to broadly syndicated loans. Private Credit includes Business Development Companies (“BDCs”).
Any investment involves a high degree of risk and should only be made if an investor can afford the loss of the entire investment. There are no guarantees or assurances regarding the achievement of investment objectives or performance and you could lose some or all of your investment.

Continuing Education Program

Private Credit: What You Need to Know

Growing Demand

Defensive Income

Core Allocation

The Basics of Private Credit

Publicly Syndicated Loans

Private Credit

Private Credit at the Core

Private Credit Landscape Today

Private Credit’s Outperformance Over Time

Annual Returns of Fixed Income Key Indices Ranked in Order of Performance (2017-2023)

Key Reasons Borrowers Select Private Lending4

A CASE STUDY

Why Borrowers Go Private

Read the complete Essentials of Private Credit

Essentials of Private Markets

Key Reasons Borrowers Select Private Lending⁴

Read the complete
Essentials of Private Credit