How to Get the Most From Private Placement Debt

Executive Summary

• We believe Private Placement Debt has three major advantages over public markets:
  – Greater diversification: Corporate issuance is complemented by significant 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.
• Allocations remain relatively modest, on average, even for the life insurance investors that have traditionally dominated the market; considering Private Placements as an extension of investment grade credit portfolios could incentivize larger allocations.
• 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 needs to put less capital to work: 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.