Why Private Debt Is Outperforming in Today’s High-Rate Environment

For years, investors were conditioned to accept modest yields from traditional bonds or equities with rollercoaster volatility. But today’s higher-for-longer interest rate environment has rewritten the playbook. While some asset classes have struggled under the weight of rising borrowing costs, private debt has not only held steady—it has outperformed.

For accredited investors looking for income, stability, and protection against inflationary pressure, private credit offers a compelling case. Let’s break down why this segment of the market is thriving, and what it means for investors in 2025 and beyond.

The Macro Backdrop: Why High Rates Are Here to Stay

Central banks have signaled that interest rates may remain elevated longer than most anticipated. That environment has created three big effects for investors:

1. Bond volatility is back. Rising rates cut into bond prices, hurting total returns.
2. Equity multiples are compressed. Higher borrowing costs slow growth and drag on valuations.
3. Demand for alternative financing is rising. Businesses and developers turn to private lenders when banks tighten credit.

Instead of being hurt by high rates, private lending benefits from them. Why? Because loans are priced at current market rates, not locked into low fixed yields of years past.

Yield Advantage: Higher Income, Without Public Market Swings

In today’s environment, private credit spreads look more attractive than ever.

• Public bonds: Average 10-year Treasuries yield around 4–5%. Investment-grade corporates aren’t much higher.
• Private debt: Depending on structure, yields can range from 8% to 12%+ —often secured by real estate or other tangible assets.

For high-income professionals or retirees seeking monthly income, the difference is dramatic. Private lending offers equity-like returns with bond-like security, but without the day-to-day volatility of the stock market.

Stability Through Security: Why Collateral Matters

One reason private debt thrives in high-rate markets is its collateralized nature.

At LBC Capital Income Fund, LLC, for example, every loan is secured by real estate. That means:

• Investors are in a first-lien position, with priority claim in case of default.
• Conservative loan-to-value (LTV) ratios (typically 60–70%) create a buffer against market downturns.
• The focus is on asset-backed lending, not speculative corporate credit.

While public markets sell on sentiment, real estate-secured private debt is anchored in tangible value.

Liquidity vs. Longevity: Why Lockups Work in Your Favor

High rates have also highlighted the tradeoff between liquidity and return.

• Public bonds: Offer daily liquidity, but at the cost of volatile pricing.
• Private credit: Often requires a 12–36 month lockup, but in exchange provides higher, predictable yield.

For long-term investors—particularly those funding retirement income or planning wealth transfers—trading daily liquidity for reliable income can be a smart swap.

Default Dynamics: Protection Even in Stress

Skeptics often point to default risk. But here’s the truth:

• In public markets, bondholders have little recourse beyond recovery in bankruptcy proceedings.
• In private debt, especially trust deed investing, lenders have direct rights to the underlying property.

This means that even in the rare event of a borrower default, investors can be made whole by selling the secured asset. In many cases, recovery exceeds principal plus interest.

Performance in 2025: Why Private Lending Leads

So far in 2025, several dynamics are driving private debt’s outperformance:

1. Higher yields sustained. Loan pricing reflects today’s rates, not yesterday’s.
2. Bank retreat = opportunity. Traditional lenders have pulled back, opening space for private funds.
3. Capital demand rising. Developers, small businesses, and investors are turning to private credit for flexible solutions.
4. Investor appetite expanding. High earners and institutions alike are reallocating from public bonds into alternative fixed-income strategies.

The result: private debt isn’t just surviving—it’s outperforming.

Who Benefits Most from Private Debt Today?

The current environment especially favors:

• Physicians, attorneys, and executives seeking steady, tax-efficient income.
• Small business owners diversifying away from operational risk.
• Retirees and near-retirees who want monthly income without bond volatility.
• Wealth managers and RIAs looking for alternative fixed income solutions for clients.

Private lending is proving to be the asset class of choice for those who value both yield and peace of mind.

Why This Market Cycle Belongs to Private Debt

In a world of higher rates, private debt is uniquely positioned:

• Yields are higher.
• Collateral provides real downside protection.
• Demand for credit is rising as banks retreat.
• Investors gain steady income while avoiding public market chaos.

For accredited investors, this isn’t just about chasing returns. It’s about building long-term wealth with stability, at a time when traditional strategies are falling short.

At LBC Capital Income Fund, LLC, we’re committed to structuring opportunities that put investors first—monthly income, first-lien security, and a disciplined approach to risk. In this environment, private debt isn’t the alternative. It’s the advantage.