The investment grade (IG) private credit market boom of recent years is here to stay, despite challenging spreads, panellists told an Insurance Asset Risk webinar this week.
The webinar, held in partnership with Nuveen, was the culmination of an eight-month research project into the topic by Insurance Asset Risk and Nuveen and follows on from a special report published in December.
"January 2025 was the busiest investment month Nuveen has ever seen in IG private credit," Laura Parrott, head of private fixed income at Nuveen, who moderated the webinar, said in her introduction.
Indeed, supply is the positive story of the start of the year, Liz Cain, head of debt origination at Pension Insurance Corporation (PIC), responded.
She highlighted infrastructure as the main area where that supply is coming from on the back of a few slow years in the project finance space.
"That is definitely picking up now with things like US renewables [or] transportation [in Europe] – whether that's airports, ports, toll roads, trains – a real mix of stuff," she said. "There's probably some sort of pent-up demand there from the COVID years of projects that weren't getting done and are now coming to market."
Although there's always a lot of talk about data centres, Cain said PIC rarely sees that convert into "real insurer-friendly transactions" as they tend to be short and often sub-IG, "whereas our appetite is more in the IG space".
Nevertheless, it is "definitely a space to watch [as] it's an interesting sector".
She also expects more activities in the corporate and utilities sectors.
"So a definite good news story on the supply side," Cain said. "The bad news story is pricing: we're very much a credit spread investor, we hedge out the underlying rate risk, so we're not all in yield focus. Spreads are tight, and expected to remain tight, if not even expected to tighten further, unfortunately."
"There's no obvious catalyst for spread widening given the wall of money that is ready to be deployed in this space," she continued, highlighting some recent deals which were 10 times oversubscribed.
With so much dry powder on the private market right now, the ability to quickly respond to a public market widening is probably not going to happen, Parrott concurred. "And that lag effect can often stick around. We have to see a pretty prolonged session in the public market for that to start to move things more precipitously."
However, both Parrott and Cain agreed that, despite "tight spreads in the public market, we are still seeing a nice relative value within the private market, which is good and healthy".
This pricing situation has created a shift in allocation, Jonathan Lancry, investment director - new asset development at L&G, noted.
While L&G has historically deployed a lot in UK long-dated private assets, over the last couple of years it has started to go more into new territory in terms of jurisdictions – to get scale – but also more complicated assets, such as structured finance.
"One of the main challenges at the moment that shifts the overall allocation a bit toward private credit is the lack of spread," he said. "We are tending, and I think the shift [is] industry-wide, to look at shorter-dated assets for the moment, and we don't necessarily want to lock ourselves for 30 years into such a poor spread environment, and so the duration now is mainly provided by sovereign assets."
Panellists also discussed how private credit has expanded beyond infrastructure debt, how they manage FX volatility, and the impact of the UK regulatory regime change – to find out more, watch the webinar recording, freely available on demand, here.