Home / Business and Economy / Investor Yields Plummet Amidst Private Credit Boom
Investor Yields Plummet Amidst Private Credit Boom
22 Feb
Summary
- Private credit yields have dropped due to lower Fed rates and high demand.
- Company earnings growth has slowed significantly since 2021.
- Shadow defaults have doubled, but pricing is a bigger concern for investors.
Investor returns in the private credit market have experienced a notable decline, driven by a confluence of reduced Federal Reserve interest rates and increased demand for private credit investments. Brian Garfield, Lincoln's managing director, highlighted that EBITDA growth in Q4 2025 was 4.7%, a decrease from the 6.5% peak in Q2 2025, signaling a broader slowdown in corporate expansion.
This slowing growth is evident as the percentage of companies achieving 15% or more in earnings growth has fallen from 57.5% in 2021 to 48.2% currently. Concurrently, the use of riskier 'payments in kind' (PIK) debt provisions has risen to 11%. The "shadow default rate," specifically indicating unexpectedly inserted PIK provisions, more than doubled from 2.5% in Q4 2021 to 6.4% in Q4 2025.
Despite the rise in shadow defaults, Garfield emphasizes that the more pressing issue for investors is the compression of yields. Private credit yields, historically benchmarked against SOFR plus a risk spread, have fallen from over 11% during market peaks to around 8.5% currently. This reduction is attributed to increased capital chasing deals, empowering companies to negotiate more favorable terms and thus compressing investor returns.
