Private-Credit Funds Eclipsed Private Equity in 2024

Global private-credit funds surpassed private equity in 2024, a third consecutive year that the overall strategy has outperformed equity, as elevated interest rates continued to pass through to lenders.

Private-credit closed-end funds posted a 6.9% annual return, according to the most recent update of the MSCI Private Capital Universe. Private equity was close behind with a 5.6% annual return, and all three subgroups posted positive returns although these lagged the performance seen in listed markets. Venture-capital (VC) funds, for instance, posted a 5.1% return, far behind the MSCI World Information Technology Index. Exit opportunities for VC funds remain scarce and those funds' returns are influenced by smoothed valuations and the delayed recognition of write-downs.

On a quarterly basis in Q4 2024, global private-equity funds ended the year at the top. It was a mixed story in private credit as the relative strength of the U.S. dollar dragged on the USD returns of non-U.S. funds — a factor most pronounced in senior debt. In private-real-asset funds, all subgroups posted negative quarterly returns. Real estate was down 2.2%, reverting to the negative performance seen since mid-2022.

Distributions stuck below prior norms

On the distribution front, buyout funds distributed more capital than VC in the fourth quarter, but rates for both remained well below their five-year averages before the COVID-19 pandemic. The slow pace of distributions remains a concern for limited partners in private-equity funds as capital remains stuck and they are not able to redeploy it into new investments.