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Private credit has been one of the fastest-growing corners of global finance — expanding from roughly $375 billion in 2015 to more than $2 trillion today. Pension funds, university endowments, and sovereign wealth funds have poured capital into it, attracted by promises of high yield and stable returns.

But new research from UC Irvine Paul Merage School of Business suggests much of that perceived performance may not yet be real.

A study co-authored by Assistant Professor Michael B. Imerman analyzes the performance of 262 private credit funds launched between 2015 and 2020 — one of the largest and most up-to-date empirical examinations of this booming asset class.

And the results tell a very different story than the industry marketing.

“There’s a gap between what’s being reported and what’s actually been realized,” says Imerman. “The vast majority of private credit value is still sitting on the books , not as distributions into the hands of investors.”

Unrealized Gains, Real Risk

The study breaks private credit fund performance into two components:

• DPI (Distributions to Paid-In) — real cash returned to investors
• RVPI (Residual Value to Paid-In) — manager-estimated future value that has not been realized or distributed

In nearly every vintage — even funds ten years old — unrealized residual value accounts for 30% to over 90% of reported returns.

“When over half of a fund’s value is still unrealized eight or nine years in,” Imerman explains, “you are not really reporting performance, but rather asking investors to trust that these marks represent what is ultimately going to be paid out.”

That trust has consequences. If economic conditions shift, those assumed future values may not materialize — a dynamic uncomfortably reminiscent of subprime mortgage valuations prior to the Global Financial Crisis and precisely the analogy that Imerman and his coauthors draw in their article.

And the Alpha? Modest — If It Exists at All.

The research also compares private credit funds against publicly traded ETFs with similar underlying assets, a more realistic and apples-to-apples benchmark than traditional junk bond or equity indices.

The surprise? In many cases, private credit funds do not meaningfully outperform those ETFs — even before accounting for fund-level leverage or high fee structures.

“Choosing the right benchmark is crucial when evaluating performance, which is exactly what we set out to do.” says Imerman. “What we found is that any outperformance is marginal at best — and in many cases entirely unrealized.”

The Illiquidity Premium… or the Illusion of One?

Private credit is often sold to institutions on the promise of an illiquidity premium — that by locking up capital for years, investors are rewarded with higher returns.

But the study finds that median fund multiples (TVPI) typically sit in the 1.25× to 1.32× range over nearly a decade with IRRs in the 8–12% range, far below the “double digit alpha” narrative. The authors also point out that IRRs are not a reliable measure of private market performance— something that has been established in the private equity literature for years. And importantly — that figure only holds if the residual value is correct.

“Investors may think they’re being paid for illiquidity,” Imerman notes, “but in many cases they’re actually being paid in assumptions, not cash.”

A Market That Needs More Scrutiny — Not More Hype

None of this means private credit is a broken asset class. But it does mean investors — particularly large pension plans — need to push harder on transparency, benchmarking, and the true nature of current returns.

“We are in no way saying that private credit is a bad asset class; in fact, it plays a very important role in helping provide debt financing to the often-overlooked middle market,” Imerman emphasizes. “However, we are trying to call attention that there are risks in this asset class that many investors were not considering; namely that a lot of the so-called outperformance is coming from unrealized, assumed values.”

As access to private credit expands beyond institutional allocators to high-net-worth individuals and eventually retail investors, that distinction will only grow more critical.

A Merage Viewpoint Rooted in Real-World Discipline

Professor Imerman’s work reflects the Merage School’s growing leadership at the intersection of finance, technology, and risk. His analysis is less about sounding the alarm — and more about equipping the market with clear, reality-based understanding.

“Private credit isn’t going away,” he says. “But with the faultlines beginning to appear, it is imperative that the fund managers and the investors for whom they act as fiduciaries carefully analyze the risks.”