Beyond the Herd: Is Cliffwater the King of Private Credit?
Evaluating Investment Yields, Efficiency, and Portfolio Quality
Cliffwater Lending Fund (CCLFX) raised over $8 billion in the 12 months ending 3/31/24. The fund does not require accreditation, however an investor must be institutional, or use a financial advisor to gain access.
The popularity of Cliffwater is not a surprise: nearly every private credit manager I research cites work from Stephen Nesbitt, its co-founder and CEO. Unfortunately, many investors follow the herd without understanding the entire picture.
This isn’t a critique of Cliffwater—it offers some decent funds. But I believe better private credit options are available if you lift up your head to look beyond where the herd is galloping. Today, I’ll compare CCLFX with a public BDC to illustrate this.
Comparing Cliffwater
Last week, we published an article on screening BDCs, along with the list of 3 that met our screening criteria:
Today, we’ll compare how CCLFX stacks against one of the three BDCs from that list on the following metrics:
Distribution metrics (yield, cash coverage, net investment income yield)
Operating efficiency
Portfolio quality and characteristics
It’s worth noting that CCLFX is not technically a BDC because it does not originate its loans. Instead it purchases them from originators and also invests into other BDCs. However, its assets are very similar to those held by publicly traded BDCs.