Public markets offer greater liquidity and often quicker mark-to-market. Meanwhile, investors are typically compensated with higher spread premium for taking on greater illiquidity associated with private credit.

For insurers, regulatory considerations include evaluating capital-charge or risk-weighted capital for private credit holdings under local regimes. Implemented through rated-feeder or CLO structures, direct lending strategies are one option to capture stronger yields while bearing in mind regulatory capital requirements. The rated-feeder structure could present significant regulatory capital advantages for US- and Bermuda-domiciled insurers through optimized risk-based capital treatment.

Structural protections against volatility along with robust underwriting can mitigate downside risks in private credit assets. Securitized credit can have stability advantages over public credit. Investing across different private credit segments and structures can provide exposure to a much larger pool of issuers, mitigating overall credit and concentration risk. Allocations to corporate direct lending, private real estate credit, infrastructure debt, and private ABF could thus enhance diversification with lower correlation with public credit alternatives.

Private credit tends to offer a spread premium over public credit, offering investors higher yields in exchange for illiquidity.

Duration characteristics can vary among public and private credit.  Most of the time, large institutional clients need to source the appropriate amount of duration in order to hedge their underlying liabilities. The duration needs of the investor and the ability to utilize derivatives, for instance, can help inform the allocation between public and private credit as well as the types of private credit.

Private credit vehicles may have higher carried interest or management fees, and the pass-through of fund expenses can be significant.