Many investors access the market via managers affiliated with large insurance companies. As demand grows, we believe investors could benefit from an independent route into the market. In this paper, we explain why we think non-affiliated asset managers get to see more transactions, and can tailor portfolios that are better aligned with investors’ specific needs.
Executive Summary
- The private placement market continues to attract increasing demand from both traditional participants and a variety of new entrants, resulting in fierce competition that, in our view, necessitates differentiated to achieve better access, higher returns and genuine diversification away from traditional corporate credit.
- We believe Private Placement Debt has three major advantages over public markets:
– Greater diversification: Investment grade fixed income can be complemented by diverse opportunities across project finance, infrastructure, real estate debt and asset-backed issuance.
– Higher risk-adjusted yield potential: Typical liquidity and complexity premiums can generate significant additional spread relative to comparable public credits.
– Enhanced downside mitigation: In the small number of historical defaults, investor-friendly covenants and other protections are associated with higher rates of recovery relative to public bonds. - We view Private Placements as a natural buy-and-maintain asset to match the long-dated liabilities of life companies, pension plans and endowments, but the yield pick-up makes them potentially attractive to many other types of eligible investor.
- We believe this market offers a unique way to match liabilities across the tenor spectrum at attractive yields without sacrificing portfolio quality, but achieving desired allocations remains challenging given the supply-demand imbalance.
- In our view, accessing the market through an independent asset manager, rather than a manager affiliated with a large insurance company, brings considerable advantages.
– An independent manager does not have the production demands associated with a general account: It may be better equipped to consider smaller, more complex or more idiosyncratic transactions.
– An independent manager is not buying Private Placements for its own balance sheet or liability-matching needs: It can dedicate itself to sourcing paper that is better aligned with investors’ specific needs. - We believe now is an opportune time for all types of eligible investor to consider Private Placement Debt for their portfolios, and to reconsider how they access this market.
Diverse Opportunity Set Offering Yield Pickup and Structural Protections
