Private debt funds are the fastest growing segment of the private capital market. We evaluate

their risk-adjusted returns, applying cash-flow-based methods to form a replicating

portfolio that mimics their risk profiles. Accounting for both equity and debt factors, a typical

private debt fund produces an insignificant abnormal return to its investors. However,

gross-of-fee abnormal returns are positive, and using only debt benchmarks also leads to

positive abnormal returns as funds contain equity risks. The rates at which private debt

funds lend appear to be high enough to offset the funds’ fees and risks, but not high enough

to exceed both their fees and investors’ risk-adjusted required rates of return.