Key takeaways are:
1. CDLI returned 12.13% in 2023, achieved through consistent returns across all four quarters. An equally strong 9.46% annualized return since inception has contributed to making private debt today’s fastest growing asset class, now $315B in assets. The ascent of private debt yields over the past year has moderated. CDLI YTM and current yield equaled 12.19% and 11.96% at year-end, respectively.

2. Realized credit losses ebbed to only 8bps in Q4, contrary to predictions expressed of trouble ahead. Though realized losses were elevated in 2023, this had little impact on the CDLI total return, as these losses were offset by unrealized gains. Most indicators of market stress (non-accruals, PIK income, effective loan life, unrealized losses) showed little change from the prior quarter.

Private debt is a rapidly growing asset class among institutional investors, a trend that is expected to continue. This report focuses on fourth quarter 2023 and long-term performance for one of the largest segments of private debt, US middle market corporate lending.

Our analysis relies upon the Cliffwater Direct Lending Index (“CDLI”) an asset-weighted index of approximately 14,800 directly originated middle market loans totaling $315 billion as of December 31, 2023.

The CDLI assists investors in better understanding private debt as an asset class and to benchmark lender performance. The CDLI is used globally by investors and lenders as the index of choice for understanding the return and risk characteristics of US middle market debt.

Launched in 2015, the CDLI was reconstructed back to 2004 using publicly available quarterly SEC filings required of business development companies, whose primary asset holdings are US middle market corporate loans. Importantly, SEC filing and transparency requirements eliminate common
biases of survivorship and self-selection found in other industry universe and index benchmarks.

And finally, loan assets in the CDLI are managed for total return by independent asset managers, unlike similar loans within insurance companies where statutory and other regulatory requirements can result in non-performance objectives. See https://CliffwaterDirectLendingIndex.com for further information on the CDLI.