Blackstone Signals Shift in Private Credit Returns as Interest Rates Decline

Private Credit Returns Normalize After Exceptional Period

Blackstone, the world’s largest private capital group, has indicated that the period of exceptional returns in private credit has concluded, according to recent reports. The company, which manages over $500 billion in credit and insurance assets, reportedly stated that the golden era of mid-teens returns on private lending has given way to more moderate investment outcomes.

Private Credit Returns Normalize After Exceptional Period
Interest Rate Shifts Drive Return Compression
Private Credit Still Outperforms Public Markets
Financing Recovery Fuels Deal Activity
Strong Quarterly Performance Despite Return Moderation
Credit Market Concerns Addressed

Interest Rate Shifts Drive Return Compression

The decline in returns follows central banks’ decisions to cut interest rates, sources indicate. “Base rates and spreads have come down, so the absolute returns reflect that,” Blackstone president Jonathan Gray told the Financial Times. He added that “some of that excess return, when you were getting mid-teens returns as a lender in senior credit two-and-a-half years ago, has gone away.”, according to industry developments

Analysts suggest private capital groups experienced significant returns on predominantly floating-rate loan portfolios between 2022 and late 2024, driven by the fastest rate increase cycle in a generation. During this period, investors reportedly poured more than $100 billion into Blackstone’s credit funds seeking yields that often exceeded 15 percent.

Private Credit Still Outperforms Public Markets

Despite the moderation, reports indicate Blackstone’s private credit investments continue to yield substantially more than alternatives in liquid debt markets. “This just reflects the world, which is that returns in fixed income are lower, but returns in private credit are higher than they are in public credit,” Gray stated.

According to the analysis, Blackstone’s private credit investments earned 2.6 percent in the third quarter, while its liquid credit investments earned 1.6 percent, implying annualized yields of 10.4 percent and 6.4 percent respectively.

Financing Recovery Fuels Deal Activity

Falling financing costs have reportedly helped fuel the return of takeover activity as private equity buyers assemble financing for buyouts. Gray noted that two years ago, Blackstone “could barely borrow any money” when acquiring a $14 billion division from industrial conglomerate Emerson, but recent abundance of bank financing has helped dealmakers pursue ambitious transactions.

This week, Blackstone and TPG struck an $18.3 billion buyout of healthcare diagnostics company Hologic, a deal Gray said would have been impossible in previous years due to financing scarcity.

Strong Quarterly Performance Despite Return Moderation

Gray’s comments accompanied Blackstone’s better-than-expected third-quarter earnings report. The group reportedly sold $30 billion of investments during the quarter, generating lucrative performance fees, while its distributable earnings jumped 50 percent from the same period last year.

Fundraising also accelerated amid widespread demand from large institutions, individual investors, and insurance companies seeking higher-yielding private loans. Blackstone attracted $54 billion in new investment capital during the third quarter, according to reports.

Credit Market Concerns Addressed

Gray rejected suggestions that recent bankruptcies of two large subprime lenders and auto parts company First Brands indicated broader credit issues. “This feels pretty certainly much more idiosyncratic to me and coming from the banking system,” he stated. “But the idea that this reflects a broader credit issue in the system, or particularly in private credit, that doesn’t make any sense to us.”

However, Gray acknowledged signs of stress among lower-income consumers, evidence of what analysts describe as a K-shaped economy where wealth grows at high income levels while economic strains increase at the bottom. “Aggregately, the economy is resilient. Where we see weakness is in Europe generally and then lower-income consumers in the US,” he noted.