The case for investment-grade private credit

Investment-grade private credit can complement public investment-grade bonds by adding spread and diversification without materially lowering credit quality.

• A 2026 survey found that 40% of insurers planned to increase investment-grade direct-lending allocations and 38% planned to raise exposure to investment-grade structured credit.
• Russell Investments estimates that selected managers generated roughly 150–200 basis points of net-of-fees spread pickup over public credit, while historical losses were comparable with those in public investment-grade credit.
• The private investment-grade market is estimated at about $38 trillion, expanding the borrower and transaction universe beyond public corporate markets, where portfolios can be concentrated in large issuers.
• In an illustrative allocation, replacing 20% of a public investment-grade exposure with private credit increases expected net-of-fees excess return from 40 to 62 basis points, assuming 40 basis points for active public credit and 150 basis points for private credit.
• Investment-grade private credit differs from traditional direct lending by targeting higher-quality borrowers and potentially providing duration; more than 90% of U.S. life insurers' private-credit exposure is investment grade, but private allocations involve lower liquidity, transparency and flexibility.

Takeaway: Investors should treat investment-grade private credit as a complement rather than a replacement for public bonds, using open architecture and multiple managers to diversify origination channels and manage illiquidity, underwriting and concentration risks.