Emerging market private credit funds employ lower leverage at both the investee-company and fund levels than their counterparts in developed markets such as the US and Western Europe, according to the latest report from EMPEA.

The report, published today, defined private credit as a subset of private capital funds predominantly invest in illiquid debt and quasi-equity securities of private companies and projects.

Around 46 percent of private credit fund respondents disclosed that their average leverage ratio at the deal level is less than 3x. The same percentage responded that their ratio was within the range of 3x and 4x.

The survey showed the average gross internal rate of return for an emerging market direct lending strategy to be 12-17 percent. It found the gross target return for the same strategy in the US and Western Europe to be around 6.5 percent to 7 percent.

The target return for direct lending strategies in China was disclosed as 17 percent. This is the highest target return among emerging countries, including India. China was also found to have the highest target return for mezzanine strategies at 20 percent.

The survey found that private credit managers with India strategies tended to target gross IRR of 13 percent for direct lending and 17 percent for mezzanine debt.