Direct Lending Returns

Antti Suhonen*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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I examine the performance of US business development companies (“BDC”). BDCs have produced returns in line with those of private funds engaged in direct lending. Leveraged loan and small-cap value equity returns explain a significant part of BDC performance, and the alpha of BDCs is zero on a market-value basis but a statistically significant 2.74% per annum based on net asset value (NAV) valuations. I find no evidence of an illiquidity premium, which suggests that the alpha could result from regulatory arbitrage or a peso problem. Cross-sectional BDC returns are widely dispersed and exhibit strong persistence in top- and bottom-quartile manager performance.

Original languageEnglish
Pages (from-to)57-83
Number of pages27
Issue number1
Early online date10 Oct 2023
Publication statusPublished - 2024
MoE publication typeA1 Journal article-refereed


  • 2.0
  • benchmarking
  • business development company
  • direct lending
  • performance attribution
  • performance persistence
  • private credit


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