Investor interest in investment-grade private credit is growing. Some managers offer net spreads about 150–200 basis points above those available in public investment-grade credit, while historical losses have been comparable, Russell Investments analysis shows. For institutions seeking additional income sources and broader issuer exposure, private credit can complement public bonds—but typically comes with less liquidity, transparency and trading flexibility.
Insurers plan to increase investment-grade allocations
A study of insurers this year found that 40% of respondents plan to increase allocations to investment-grade direct lending, while 38% expect to raise their exposure to investment-grade structured credit. In response to rising demand, alternative investment managers are expanding their origination capabilities, arranging financing tailored to corporate borrowers and pursuing more bilateral transactions directly with investment-grade issuers.
Pricing in these deals can reflect the bespoke financing structure and the liquidity constraints accepted by investors. Russell Investments says some investment-grade private credit managers offer net spreads, after fees, about 150–200 basis points above public credit. The historical loss levels in its comparison were similar to those in public investment-grade markets. Actual outcomes depend on the manager, transaction and underwriting quality.
A roughly $38 trillion market reaches beyond public issuers
Public investment-grade portfolios may be concentrated in the largest corporate issuers. When credit spreads are tight, investors may also receive limited compensation for taking on that exposure. For portfolios with substantial public credit holdings, private lending can add variety in both issuers and transaction types.
The investment-grade private credit market is estimated at about $38 trillion, spanning many borrowers and financing transactions beyond traditional public markets. That size does not mean every investor has equal access to the same opportunities: managers differ in sourcing, transaction types and industry expertise, and an individual manager’s portfolio may still be concentrated in particular areas.
A 20% allocation lifts modeled excess returns to 62 basis points
Russell Investments’ illustrative assumptions put net excess returns at 40 basis points for actively managed public investment-grade credit and 150 basis points for investment-grade private credit. Under those assumptions, shifting 20% of a traditional allocation to private credit would raise a portfolio’s expected net excess return from 40 to 62 basis points.
The example illustrates how different return assumptions could affect a portfolio; it is not a promise of realized returns. The outcome would depend on the allocation, the net excess return actually achieved in private credit and fees. Investors also need to weigh the typically lower liquidity, transparency and flexibility to adjust private transactions against their portfolio objectives and cash-flow needs.
Intel financing illustrates the overlap between public and private markets
Companies can use public bonds and private capital to meet different financing needs, including large investment-grade corporations. Intel considered financing arrangements for a large semiconductor plant and ultimately chose a bespoke private transaction rather than a traditional bond issue. Such financing can be structured around a project’s requirements, while investors providing flexibility may receive compensation through the deal terms.
The example shows that public and private markets are not entirely separate funding channels. Assessing both within the same investment-grade credit framework can help investors compare borrowers, structures and sources of spread. But the bespoke nature of private deals means their terms, risks and liquidity need to be assessed individually.
Investment-grade private credit differs from traditional direct lending
Private credit is often used to describe direct loans to below-investment-grade companies. These loans typically carry higher credit risk in pursuit of higher returns, are often floating-rate and have limited or no significant duration exposure.
Investment-grade private credit provides exposure to investment-grade borrowers through privately negotiated corporate and asset-backed financing. Investors may receive additional yield for accepting lower liquidity, greater customization and more complex structures while retaining investment-grade credit characteristics. Unlike traditional direct lending, it can also provide duration, making its portfolio role closer to public investment-grade bonds; traditional direct lending is more comparable to high-yield bonds and syndicated loans.
Insurers are established investors; pension plans are still assessing the market
Insurers have played a central role in establishing investment-grade private credit as an institutional asset class. Most U.S. life insurers hold private credit alongside public bonds, and more than 90% of their private credit exposure is investment-grade. Pension plans have entered the market more recently, though a small number have begun adding it as a complement to liability-hedging fixed-income allocations.
Managers vary in industry coverage, transaction expertise and sourcing channels. Combining managers with complementary capabilities may give investors exposure to different parts of the market and reduce reliance on a single approach. As established firms expand and new entrants arrive, access to deals, underwriting standards and specialist expertise remain important points of differentiation.
Investment-grade private credit broadens the range of high-quality fixed-income options, but it is not a replacement for public bonds. Any potential yield pickup needs to be considered alongside limits on liquidity and information transparency. For institutional investors, manager selection, portfolio construction and funding needs remain central to allocation decisions.