July 24 (Reuters) – Insurers and large institutions are preparing to put more money into private credit markets, a survey showed, even as wealthy investors turn cautious about the illiquidity and regulators scrutinize the industry’s growing links to insurance balance sheets.
While private credit markets have been quiet the past few weeks following a wave of redemptions, news this week showed the sector may be shifting toward investors better able to accept long lock-ups and away from clients with lower tolerance for limited exits.
Insurers are still ready to commit money. A Marsh survey found 57% plan to increase private credit exposure over the next 12 to 24 months, including 81% of firms managing more than $25 billion and 73% of life insurers.
Alternative asset manager Blackstone said withdrawal requests at its flagship private credit fund fell materially early in the third quarter, after investors sought to redeem 10% of shares in the second quarter. The fund repurchased 5%, its customary quarterly limit.
The pressure on private credit because of perceived risks over AI exposure has not stopped money managers from raising capital from diverse sources.
Blackstone attracted nearly $70 billion across its businesses during the quarter, while institutional clients continued to allocate to private credit even as fundraising from wealthy investors remained muted.
The Marsh survey showed insurers are keen to participate more in investment-grade direct lending, private placements, asset-based finance and structured credit, rather than solely on loans to private-equity-backed companies.
But two-thirds of them cited the shrinking premiums they get for locking up funds in private credit and tighter spreads as a concern, while more than half pointed to weaker underwriting or covenants.
That leaves private credit with ample capital but a harder task: proving that private loans still offer enough extra return to justify their illiquidity and valuation risk.
The limited secondary markets for private credit are helping create an exit route. GCM Grosvenor raised $1.2 billion for its first dedicated strategy, while Ares raised $7.1 billion for its debut private credit secondaries fund.
That growth reflects a trend in which players in private markets can acquire seasoned portfolios from investors seeking cash, rebalancing exposure or tiring of extended holding periods, such as high-net-worth individuals.
Meanwhile, established lenders continue to deploy capital and refinance. Apollo Debt Solutions BDC originated about $1.3 billion of private debt investments in the second quarter, almost entirely in first-lien loans. Ares Capital refinanced roughly $709 million of direct-lending debt through a collateralized loan obligation.
The greater role of insurers is also drawing regulatory scrutiny. Europe’s insurance watchdog is examining private equity ownership, affiliated investments and reinsurance structures that could shift risks between insurers and related asset managers.
(Compiled by Patturaja MurugaboopathyEditing by Vidya Ranganathan and David Gaffen)
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