Why institutional investors are prioritising private debt and credit alternatives in 2025
Schroders’ Global Investor Insights Survey found these strategies are in focus for increased allocations over the next 12 months.
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As institutional investors navigate the evolving landscape of private markets, strategies such as private debt and credit alternatives are gaining prominence. Insights from Schroders’ Global Investor Insights Survey reveal a growing focus on these asset classes for 2025, driven by the pursuit of diversification and enhanced returns.
Survey findings: Investors targeting increased allocations to private debt and credit alternatives
Pension funds, insurance companies and long-term asset owners that invest in private markets are planning to increase allocations to a suite of private debt and credit alternative strategies.
That’s according to Schroders’ Global Investor Insights Survey, which found that, across all 815 institutional investors surveyed, 94% either already invest in, or plan to allocate in the near term to, private markets asset classes.
Among the more than 400 individual survey respondents responsible for managing their institution’s private market allocations, private debt (46%) is now the second most popular private asset strategy for increased allocation in the coming 12 months, with infrastructure debt (41%) and securitised or asset-backed finance (34%) also front of mind for increased investment.
Notably, private debt (51%) is the top-ranked private markets strategy to which pension funds specifically expect to increase exposure in 2025, while infrastructure debt (41%) and securitised or asset-backed finance (35%) are similarly prominent.
Meanwhile, among insurance companies, infrastructure debt (46%) is a key allocation priority, ranking second among private asset strategies for increased investment, with private debt and securitised or asset-backed finance (both 40%), real estate debt (34%) and insurance-linked securities (33%) all scoring highly.
For other long-term asset owners, including endowments and foundations, family offices and sovereign wealth investors, private debt (44%) and infrastructure debt (38%) are ranked as the second and third priorities, respectively, for increased private markets allocation.
Overall, private equity came out on top across all institutional investors looking to increase private asset exposure, as investors seek to capitalise on its potential for higher returns and long-term growth, particularly in sectors that can benefit from disruption and innovation.
Securitised credit in focus in APAC
On a geographic basis, private debt and credit alternative strategies are equally in focus for institutional investors across all global regions.
In particular, more than half of institutional investor respondents in Asia-Pacific that manage private market allocations are planning to invest more in private debt (52%) and securitised or asset-backed finance (51%) in the coming year, with infrastructure debt (46%) also a key priority.
Elsewhere, private debt (48%) was the most popular private market strategy to which investors in North America expect to increase exposure, ahead of private equity (44%), while infrastructure debt (41%) is, again, prominent.
In the UK, infrastructure debt (42%) ranks as the second most popular private asset strategy for increased allocation, with private debt (41%) and securitised or asset-backed finance (34%) also seen as key areas. Across the wider EMEA region outside of the UK, investors are prioritising private debt (41%) and infrastructure debt (38%), which rank second and third, respectively, for increased investment.
Private debt and credit alternatives: The toolkit just got bigger – right tool at the right time
Michelle Russell-Dowe, Co-Head of Private Debt and Credit Alternatives, Schroders Capital
With the massive compression in risk premium in liquid markets a key global trend is the consideration of private debt or private credit in both the ‘private’ portion, as well as in the "fixed income" or liquid portion, of investor allocations. Truly we are seeing a shift in the use of liquidity premium and complexity premium to generate safer, low-volatility income as a core component of a shift out of equity risk premium, or as an exercise in diversification.
Private debt, or traditional direct lending, is most typically one of the earliest steps in establishing a ‘private asset’ allocation. Private debt allocations represented a search for income where an investor was able to use a tool other than just ‘more credit beta’ by adding some premium by working within a less liquid, or less efficient market.
As private asset allocations mature there are some additional steps that are now becoming much more widely accepted and sought out. Moving from corporate borrowers to consumer borrowers, asset-based finance (ABF) offers diversification and a very different set of cash flow profiles. This space is very large and exposures here are one of the key additions highlighted by investors across many regions, but especially the Americas and Asia Pacific.
Perhaps the biggest change, however, in private debt, has been the growth of investment grade private credit. There is a wealth of potential to create alternative credit profiles through ‘structuring’ a tool close to the heart of any specialist in ABF, or its syndicated sister, asset-backed securities (ABS). This brings private credit into the core of, well, core fixed income, and clearly our surveys show the popularity of private credit as the top addition in a fixed income portfolio.
We see a tremendous opportunity to add diversity to a portfolio through a well thought out private allocation. That allocation maybe as a fixed income alternative, as a shorter duration alternative, or as an opportunistic/private alternative. Spanning the continuum of income from public to private is the newest frontier.
As we move forward, flexibility to pivot to the best fundamentals, to the opportunity the market is offering and to use structure to mitigate risks or maximise returns, are key. We believe looking at areas where capital allocation is inefficient is key. This is often an area where regulated players like banks or insurers have been prevalent. By focusing on carefully structured, high-quality assets, and navigating the opportunity set across public and private credit, investors can achieve their objectives, even if they range from de-risking to return seeking.
‘Private credit’, including corporate debt and asset-based finance, is filled with opportunities to diversify regionally, to diversify sectors and sub-sectors, to choose security of collateral, to choose tenor of cash flow and to use structure to optimise the return profile to a goal.
To view the GIIS report and its findings in full detail, please click here.
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