The Lincoln US Senior Debt Index (LSDI) experienced a slight decrease in yield during the first quarter of 2025, ending the period at 10.48%, according to a recent report from Lincoln International LLC. This represents a 0.17% decline from the previous quarter, driven by declining SOFR rates offsetting spread widening. However, analysts caution that the full impact of Liberation Day – and the resulting tariffs – won’t be fully reflected in the Q1 data, potentially impacting its predictive value.
The LSDI, developed in collaboration with Professor Pietro Veronesi of The University of Chicago Booth School of Business, tracks the performance of over 1,600 private market, direct lending credit investments across more than 175 alternative asset managers. It provides insights into total return considerations and the impact of interest rate and credit risk changes. The index’s latest results reach as market participants grapple with ongoing global volatility and its effects on private markets.
Yield Decrease Driven by SOFR, Despite Widening Spreads
While the yield on the LSDI decreased, the report highlights a concurrent increase in spreads – up 0.29% over the prior quarter. However, these spreads remained below the index’s historical average, attributed to competitive factors within the private credit market. Lincoln International noted that enterprise values began to decline in February, and spreads continued to widen late in the quarter. The Lincoln US Senior Debt Index represents years of research and analysis of data, as stated by Lincoln International in their Q1 2025 report.
Impact of Liberation Day and Macroeconomic Factors
A key caveat to the Q1 2025 results is the timing of Liberation Day, which occurred after March 31, 2025. Lincoln International explicitly states that the quarter’s results do not account for the macroeconomic impact of the higher tariffs associated with Liberation Day. This suggests that the full picture of the private debt market’s performance in Q1 may not be fully captured, and future quarters will be crucial for assessing the longer-term effects. The index is designed to provide market participants with information to facilitate a greater understanding of senior debt, a vital source of capital to the private sector according to Lincoln International.
Monitoring Market Volatility and Private Market Trends
Lincoln’s Valuations and Opinions Group is actively monitoring global market volatility and its impact on private markets in real-time. Several post-March 31, 2025 updates have been published, including reports on European Debt Trends and the Impact of Recent Market Volatility as detailed in the Q1 2025 report. These ongoing analyses aim to provide a more comprehensive understanding of the evolving landscape for private credit investments.
The Lincoln Private Market Index (LPMI) complements the LSDI by tracking changes in the enterprise value of U.S. Privately held companies. The LPMI enables private equity firms and other investors to benchmark their investments against peers and correlate performance with the S&P 500 as outlined on Lincoln International’s website.
What to Watch in the Coming Quarters
Looking ahead, the outlook for the private debt market remains highly uncertain. Investors and market participants will be closely watching how the effects of Liberation Day tariffs and broader macroeconomic trends unfold in subsequent quarters. Lincoln International encourages readers to contact their valuation professionals for continued updates on the current state of the private markets. The next key checkpoint will be the release of the Q2 2025 Lincoln Senior Debt Index, which will provide a more complete picture of the market’s response to these evolving conditions.
What are your thoughts on the current state of the private debt market? Share your insights in the comments below.
