Bank lending and deal flow on the decline, economic stress on the rise and some of the best yields our teams have seen. It’s a surprisingly good time for private credit.
Adding durable, low-cost external leverage to lower-volatility assets via the FHLB system can be an attractive way to enhance risk-adjusted return potential versus owning higher-volatility assets with more embedded leverage directly on insurance company balance sheets.
SASBs in the industrial, multi-family and life sciences spaces are compelling. Higher-yielding office and retail CMBS aren’t worth the reach … yet.
Changing the risk-based capital framework is likely to increase charges on BBB, BB and B rated tranches of collateralized loan obligations (CLOs).
In our view, valuations appear reasonable and private equity remains a compelling way for insurers to gain exposure to alternatives.