Financial Analysts Journal 04 December 2018 Volume 75 Issue 1
The Returns to Private Debt: Primary Issuances vs. Secondary Acquisitions
Private debt fund managers invest in debt positions of private companies through (1) new issuances or (2) secondary acquisition of loans. In the study reported here, we used data from more than 400 investments into private companies in 13 Asia-Pacific markets between 2001 and 2015 to examine which strategy performs best. Conditional on market and industry factors, trading private debt delivers higher returns than buying and holding a primary issuance. So, institutional investors should permit fund managers investment flexibility to trade. Furthermore, a portfolio of private debt investments delivers excess returns to public markets over time, with excess returns affected by volatility, funding liquidity, and the global financial crisis. An investment in Asia-Pacific private debt should improve risk-adjusted returns for a global or emerging market fixed-income portfolio.
About the Author(s)
Douglas Cumming, CFA, is the DeSantis Distinguished Professor of Finance and Entrepreneurship at the Florida Atlantic University College of Business. Previously, he was a professor and the Ontario Research Chair at York University’s Schulich School of Business. Professor Cumming has also held visiting appointments at Essex Business School, Kobe University, and EMLyon, among others. He has published 18 academic books and over 150 articles in leading refereed academic journals in finance, management, law, and economics. Professor Cumming is the founding editor of Annals of Corporate Governance, a former co-editor of Finance Research Letters and Entrepreneurship Theory and Practice, and an associate editor for numerous academic journals. He is a regular speaker at academic and industry conferences around the world and has recently given keynote speeches at the INFINITI Conference on International Finance, the Vietnam Symposium in Banking and Finance, and the Humboldt University of Berlin Fintech Conference. Professor Cumming earned a bachelor of commerce in economics and finance (with honors) from McGill University, an MA in economics from Queen’s University, and a JD and a PhD in economics and finance from the University of Toronto.
Grant Fleming is a partner at Continuity Capital Partners, Canberra, Australia.
Zhangxin (Frank) Liu is assistant professor of accounting and finance at University of Western Australia Business School, Crawley, Australia.