The investment landscape has transformed dramatically over the past decade, and the role of private credit in institutional investor portfolios has moved from a satellite investment to a core portfolio allocation, playing an important role within a new, uncertain macro environment. Not only have institutional investors continued to increase allocations to private credit, they are also actively looking to diversify within this asset class - seeking solutions which address specific portfolio goals, in addition to providing access to idiosyncratic factors and potential for robust risk return profiles.
Pension funds and insurers are the largest investors in private credit funds globally and their allocations have increased more than six-fold in the last decade . Many initial private credit allocations have resulted in a somewhat concentrated exposure with overlapping underlying credit risk, borrower profile, interest rate correlation and duration, even with different investment managers.
In this context, it has become increasingly clear that private credit could potentially play a much bigger role, addressing investor allocation needs that can no longer be met solely by traditional strategies, both public and private. Institutional investors continue to seek yield-generating private credit investment opportunities with shorter maturities, lower risk, or lower interest rate correlation or simply, a different return generation profile. This has resulted in significant increase in interest in several asset classes in this space, traditionally originated and retained by banks.
One of the challenges facing investors has been securing access to the origination flows and establishing adequate asset selection and portfolio management to gain that exposure efficiently. As a result, private credit managers have increasingly looked to banks and their origination platforms, aiming to secure bank origination partnerships that provide access to deal flow. Bank-owned asset managers have naturally found themselves in prime position to execute these partnerships.
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