Private Equity And High Yield Debt

 

A large part of the companies bought by private equity are with low or distressed ratings, according to various publications.

The percentage varies but the the top 15 private equity companies in the world have between 5 % and 32 % of the companies in their portfolios with low or distressed ratings.

The reason is twofold. Whey Blackstone, KKR, Apollo, Carlyle, Ares, Bain Capital, TPG, Warburg Pincus, CVC, etc. leading private equity firms buy a company they use only 30 % in equity and the rest is in debt. This makes for them buying many high risk companies in the first place.

In addition, the private equity companies usually take out additional debt for their portfolio companies and load them up with debt. The higher debt levels naturally decrease the credit ratings of many of the private equity portfolio companies sometimes to distressed levels even.

So, in short private equity to a large part is a high yield business, which entails above moderate risk.

Private equity companies mitigate the risks by buying mature businesses, which can endure the high debt load.

In addition, private equity companies strive to make their portfolio companies run better, with better management which improves their durability.

And private equity often do substantive job cuts in their portfolio companies.

All this makes for the fact that private equity is a leveraged business and it tends to outperform the economy and the stock market in boom times. And do worse in recessions.

In the last rolling year, however, the largest listed private equity companies Blackstone, KKR, Apollo, Carlyle, Ares, Blue Owl, CVC underperformed the S&P 500 even though the S&P 500 clocked in a 16.5 % gain for 2025.

Part of the reason is the high interest rate environment in the US and the valuation concerns of investors about artificial intelligence, AI technology companies in which the leading private equity firms have invested heavily and makes them leveraged once on the AI technology, which is an operationally leveraged business and second the leveraged nature of the private equity buyout investments Blackstone, KKR, Apollo, Carlyle, Ares, Blue Owl, CVC etc. have done.

So Blackstone, KKR, Apollo, Carlyle, Ares, Blue Owl, CVC, etc. leading private equity firms could outperform the S&P 500 in 2026 if artificial intelligence, AI continues to perform and the S&P 500 rises more than 10 % in 2026, according to Wolfteam Ltd.'s projections and estimates.