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An Introduction to US Credit Private Placements

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Determining the strategic asset allocation is one of the most important and impactful decisions for institutional investors. Unfortunately, there is no golden rule for the proper allocation as every investor has their own set of objectives and constraints. For some, like insurance companies, the overall yield of the portfolio is a priority. Others, like corporate defined benefit plans, must weigh their decision in the context of their liabilities and select an appropriate asset mix that ensures they are able to meet future obligations. The current low rate, low return environment has forced investors to reassess their portfolios and asset allocation in hopes of giving themselves the best chance of achieving their goals. Falling Treasury yields and, in turn, declining expected return assumptions has only made this pursuit more difficult. As illustrated in Figure 1, these expected return assumptions have been trending lower for years. Given market dynamics, we do not anticipate this theme to change dramatically going forward. Investors have increasingly explored other asset classes in the hopes of boosting returns, diversifying their portfolio and enhancing yield.

In this paper, we discuss the details of US Credit Private Placements (USPPs) and their possible inclusion in institutional investors’ portfolios. USPPs are largely investment grade bonds issued outside the public bond market and are exempt from registration with the  Securities and Exchange Commission (SEC). Issuers of USPPs tend to fall broadly into two sectors: 1) corporate and alternative finance, and 2) infrastructure finance. Within  LGIM America, USPPs are typically part of the broader  Private Credit asset class, which may include investments  in commercial mortgage loans. Additonally, we will further examine USPPs and the unique advantages they can offer institutional investors. 

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Views and opinions expressed herein are as of the date published and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.

Unless otherwise stated, references herein to "LGIM", "we" and "us" are meant to capture the global conglomerate that includes Legal & General Investment Management Ltd. (a U.K. FCA authorized adviser), LGIM International Limited (a U.S. SEC registered investment adviser and U.K. FCA authorized adviser), Legal & General Investment Management America, Inc. (a U.S. SEC registered investment adviser) and Legal & General Investment Management Asia Limited (a Hong Kong SFC registered adviser). The LGIM Stewardship Team acts on behalf of all such locally authorized entities. © 2024 Legal & General Investment Management Limited. All rights reserved. No part of this publication may be re-produced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the publishers.