Benchmark for debt?
This might be an idiotic question, but is there a benchmark for the performance of debt (like the S&P 500 for equities)? Also, what do credit HFs and private debt funds “compete” against?
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There are a ton. Some common include Bloomberg Barclays Aggregate investment grade for IG names, Bloomberg Barclays agg high yield for HY (Bloomberg Barclays also provide indexes specifically for government bonds and corporates etc), ICE BofA High yield also for HY, S&P leveraged loans for BSL, Credit Susie LL for the same. Basically all those major providers have indexes that can be specified by type of credit and geography.
HF might track one or a number of these benchmarks depending on the mandate. I've seen private debt funds be compared to the S&P LL + some illiquidity premium. I've also seen funds, private and public alike simply compared to, say, cash or LIBOR + some spread (be 300-500bps or so)
This post is a great example of why I love this forum. Sb’d.
Follow up: would you say that debt focused managers have an easier time outperforming their benchmarks relative to equity managers? I’ve heard that very very few equity focused funds outperform the S&P 500 over +5 years and was wondering if the same is true for debt.
Thank you. Yes, I think that’s the conventional wisdom. The fixed income universe is much larger than equities, which can contribute to some inefficiency just because there are so many more individual securities to know. There are a variety of other possible reasons and I know there are some pieces written by the likes of Fidelity, Schwab, and Morningstar about the topic
If everything above is true then I am surprised that debt funds don't make more $$$ than equity managers because it seems like debt managers can actually justify their value with better absolute returns than their benchmarks. Am I missing something here? Is debt just naturally handicapped because of less upside? Is it all really all about the fund economics and hitting it big one year? Someone please enlighten me.
Most of the “distressed funds” underperformed their benchmarks from 2010-2019 because they spent 9 years buying horrible businesses. 20-21 will likely be exceptions to that. There are certainly some outliers including newer funds that have meaningfully outperformed over the last 5 or so years - Goldentree, Apollo HF, Diameter, Mudrick, Sona, Tilden Park, and a few others while Solus, Blue Mountain, Anchorage, King Street, Sound Point, Centerbridge, GSO, etc are amongst the serial under performers over a long time period. It depends which fund as many of these have different products but most would benchmark vs one of the hy indices mentioned above, the hfr distressed index, or some combination.
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