Key facts
- 57% of insurers plan to increase private credit exposure over the next 12 to 24 months, according to a Marsh survey.
- Wealthy investors are turning cautious about private credit's illiquidity, while regulators scrutinize its links to insurance balance sheets.
- Blackstone saw withdrawal requests at its private credit fund fall materially in early Q3 after a 10% redemption in Q2.
- Insurers are interested in investment-grade direct lending, private placements, asset-based finance, and structured credit.
- Shrinking premiums and tighter spreads are key concerns for insurers regarding private credit investments.
- GCM Grosvenor and Ares have raised significant capital for private credit strategies, including secondaries.
Insurers and large institutional investors are signaling increased commitment to private credit markets, according to a recent Marsh survey. This trend emerges as some wealthy investors exhibit caution due to liquidity concerns, and as regulatory bodies intensify their scrutiny of the growing integration of private credit within insurance company balance sheets.
Despite recent quiet periods in private credit markets following redemption waves, the sector appears to be shifting towards investors with a higher tolerance for long lock-up periods. The Marsh survey found that 57% of insurers plan to expand their private credit exposure within the next 12 to 24 months. This inclination is particularly strong among larger firms, with 81% of those managing over $25 billion and 73% of life insurers indicating such plans.
Alternative asset manager Blackstone noted a significant decrease in withdrawal requests at its main private credit fund early in the third quarter. This follows a period in the second quarter where investors sought to redeem 10% of shares, with the fund repurchasing its customary 5% limit. Blackstone successfully attracted nearly $70 billion across its various businesses during the second quarter, with institutional clients continuing to allocate capital to private credit, contrasting with muted fundraising from wealthy investors.
Insurers are showing a preference for investment-grade direct lending, private placements, asset-based finance, and structured credit, moving beyond a sole focus on loans to private-equity-backed companies. However, a significant concern for two-thirds of these insurers is the diminishing premiums offered for locking up funds in private credit, alongside tighter spreads. Over half also pointed to weaker underwriting standards or covenants as a worry.
This situation presents private credit with substantial capital but a challenge to demonstrate that private loans still provide sufficient additional returns to justify their illiquidity and valuation risks. The development of limited secondary markets is providing an exit route, with GCM Grosvenor raising $1.2 billion for its first dedicated strategy and Ares securing $7.1 billion for its debut private credit secondaries fund. These efforts reflect a broader trend where private market players acquire seasoned portfolios from investors seeking cash, rebalancing exposure, or exiting extended holding periods.
Meanwhile, established lenders continue to deploy capital and facilitate refinancing. Apollo Debt Solutions BDC originated approximately $1.3 billion in private debt investments during the second quarter, primarily in first-lien loans. Ares Capital, for instance, refinanced about $709 million of its direct-lending debt through a collateralized loan obligation. The increasing role of insurers in this market is attracting regulatory attention, with Europe's insurance watchdog examining private equity ownership, affiliated investments, and reinsurance structures that could transfer risks between insurers and related asset managers.