Private credit is maintaining its spread premium over syndicated markets, in part due to companies staying private for longer and increasing public–private market fluidity, according to BlackRock research.
This has led public pension plans to increase their private credit allocations from approximately 2.9 per cent of assets under management (AUM) in 2020 to four per cent in 2024, with some funds targeting even higher exposures, according to Preqin data cited in the BlackRock report.
Read more: The path to pension money
The asset manager’s report on investment directions for institutions recommends institutional investors to aim for a multi-strategy approach and apply strategic allocation across a range of asset classes. Specifically on private debt, it notes that high-grade credit is experiencing rapid growth, with 2025 issuance expected to exceed $150bn (£111bn).
The attractiveness of the asset class is demonstrated by its broadening across sectors and asset-backed finance. Despite tighter pricing from new entrants, spreads remain above comparable public credit, especially in European direct lending, the report adds.
To respond to rising institutional demand for higher yield and differentiated exposure, the report says managers keep a focus on resilient growth sectors, such as B2B software, cybersecurity, financial services and healthcare, and later-stage companies with proven revenue models.
Read more: BlackRock posts historic quarter as AUM jumps to $14tn
When it comes to opportunities in infrastructure debt, whose appeal derives from its potential to generate resilient income and align with long-dated liabilities, the report argues this segment – estimated to be worth $160bn (£118bn) – remains under-scaled relative to the financing demands by AI-enabled digital infrastructure, alongside energy, renewables and essential utilities such as water and waste.
BlackRock says infrastructure debt is, however, attractive to pension funds given its capital efficiency, stable spreads and partial inflation linkage.
Read more: BlackRock fund downgraded after 19pc NAV drop in Q4
