The Case for Investment Grade Private Credit within an LDI Portfolio
Interest in investment grade (IG) private credit strategies has been growing in recent years. Proponents of the asset class have always pointed toward the potential for yield enhancement, availability of structural protections and added diversification. 2024 could be the year where attractive market conditions intersect at the right moment within the evolution of DB plan sponsor’s LDI programs.
The opportunity set within IG private credit has significantly broadened after the banking crisis in Spring of 2023, increasing the illiquidity premium available in the market. Additionally, pension plans’ growing fixed income allocations and falling liability durations are propelling plan sponsors to explore shorter-dated, diversified credit strategies. Market developments and the pension plan landscape has set the stage for a strong argument to include IG private credit within institutional portfolios, especially in an LDI context.
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