Debt fund returns match up well versus equities

With our firm’s 2013 annual meeting just around the corner, I thought I’d look at some of the debt fund net returns that pension plans across North American have been receiving of late. The data the follows comes from CalPERS, CalSTRS or Prequin. Prequin’s venture debt benchmark includes the 2005-07 vintage returns of many of our key U.S. competitors, including: Costella Kirch V, InnoVentures Capital Partners II, Lighthouse Capital Partners VI, Partners for Growth II, Pinnacle Venture Debt II, Plenus II and WTI / Venture Lending & Leasing V. The year in brackets represents the vintage):

Ares/CalPERS CLO (2007): +4.7% IRR
Audax Credit Opportunities Fund (2007): +3.7% IRR
Audax Mezzanine Partners II (2006): +8.0% IRR
Carlyle High Yield Partners (2007): +32% IRR
Fortress Credit Opportunities Fund (2010): +19.2% IRR
Gleacher Mezzanine Fund I (2001): +20.1% IRR
Mezzanine Lending Associates III, L.P. (1989): +16.4% IRR
Prequin Median Venture Debt return (2005-07): +7.9% IRR
Sankaty Credit Opportunities II, L.P. (2005): +3.9% IRR
Sankaty Credit Opportunities III, L.P. (2007): -0.6% IRR
Sankaty Credit Opportunities IV, L.P. (2008): +13.6% IRR
Silver Lake Credit Fund, L.P. (2008): +6.2% IRR
Summit Subordinated Debt Fund III, L.P. (2003): +8.7% IRR
Summit Subordinated Debt Fund IV, L.P. (2008): +7.5% IRR
TA Subordinated Debt Fund II, L.P. (2006): +7.0% IRR
TA Subordinated Debt Fund III, L.P. (2009): +6.9% IRR
TPG Credit Stategies Fund (2007): +5.7% IRR

Wellington Financial Fund III GAAP (2006): +9.2% IRR
Wellington Funds I-III (2000, 2004 and 2006): +9.4% IRR

Since the TSX was down 9% on a gross basis (pre dividends) for the five years ending December, and the Dow was about flat, the debt world’s been a decent place for institutional investors to play, even before the start of the global financial crisis.

MRM