Defined Benefit
Insurance Assets

Private Credit Appeals to Investors in a Low-Yield Environment

Private Credit Appeals to Investors in a Low-Yield Environment
1 min 7 sec
1Q22 Private Credit Trends

As credit spreads have compressed, institutional investors have pushed into private credit in search of yield, with a balanced private credit allocation to a mix of top quartile to median performers offering a levered return in the 8% to 10% range.

  • Yield and income-generating characteristics remain attractive in a low-rate environment.
  • Alpha generation can be magnified through strategies that extract a complexity premium.
  • Many direct lending assets are floating rate, which can add protection against rising rates.
  • Portfolios were resilient during the COVID dislocation due to liquidity injected into the economy; valuations are back to 2019 levels but the space remains crowded.
  • Private credit performance varies across sub-asset class and underlying return drivers. On average, the asset class has generated net IRRs of 8% to 10% for longer-term trailing periods ended Sep. 30, 2021. Higher-risk strategies performed better than lower-risk strategies.
private credit

Fundraising in 2022 seasonally slow

  • Private credit fundraising tapered off in 3Q20 due to COVID-related disruption but significantly rebounded in 4Q20 and 1H21; 1Q22 has been seasonally slow with fewer funds in the market but with larger fundraise targets.
  • Fundraising in the first part of 2022 focused on diversifying strategies such as specialty finance, specialized industry lending, and non-sponsor/opportunistic lending.
  • Traditional sponsor-backed strategies are coming to market with evergreen structures for which there is growing demand.
  • There is continued strong private credit fundraising activity from large credit shops as well as new offerings from traditional fixed income managers.
  • Industry consolidation is in full swing with large traditional firms acquiring alternative credit managers, such as T. Rowe Price acquiring Oak Hill Advisors and Alliance Bernstein’s acquisition of CarVal.

Posted by

Share on facebook
Share on twitter
Share on linkedin
Related Posts

S&P Global Moves Away from Numeric ESG Credit Indicators

Kristin Bradbury
Kristin Bradbury explains why S&P Global dropped its numeric credit indicators and what it means.
Private Markets

Private Credit IRRs Stay Steady and Range from 8%-10%

Catherine Beard
Catherine Beard analyzes private credit activity in 2Q23.
Public Markets

Tech Stocks Lead U.S. Indices Higher; Rate Increases Send Bonds Lower

Kristin Bradbury
Kristin Bradbury assesses the global stock and bond markets in 2Q23.
Private Markets

Our First Private Credit Fees and Terms Study: What We Found in 2023

Catherine Beard
Catherine Beard provides a summary of our Callan 2023 Private Credit Fees and Terms Study
Private Markets

Private Credit Interest Focuses on Relative Value and Downside Protection

Catherine Beard
Catherine Beard assesses private credit performance and fundraising for 1Q23.
Public Markets

Gains for Stocks and Bonds but the Ride Was Bumpy

Kristin Bradbury
Kristin Bradbury writes about the rebound in 1Q23 for global stocks and bonds.

Callan’s 2023 Capital Markets Assumptions: A Behind-the-Scenes Look

Capital Markets Research
This blog post details the process and reasoning behind the Callan Capital Markets Assumptions for 2023-2032, and provides detailed information about ...
Private Markets

Investor Appetite for Private Credit Continues, but Strategies of Interest Shift

Catherine Beard
Catherine Beard assesses private credit performance in 4Q22 and for 2022 as investor appetite for the asset class continues.
Public Markets

Global Stocks Rebound in 4Q; Fixed Income Suffers Dreadful Year

Kristin Bradbury
Kristin Bradbury analyzes global equity and fixed income markets in 4Q22 and for the full year.
Private Markets

Private Credit Sees Strong Demand as Rates Rise

Catherine Beard
Catherine Beard takes a look at the private credit landscape in 3Q22 and assesses the year so far.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.