Institutional investors - particularly insurers - are preparing to deepen their commitments to private credit, even as other investor groups grow more cautious about the asset class’s illiquidity and valuation risks, a recent survey found. The dynamic comes after a period of elevated redemption activity that has temporarily quieted trading in private credit markets.
Survey data from Marsh shows 57% of respondents plan to raise their private credit exposure over the next 12 to 24 months. That interest is concentrated among the largest managers, with 81% of firms overseeing more than $25 billion indicating an intent to increase allocations, and 73% of life insurers saying the same.
Market flows at major managers illustrate the shifting investor mix. Blackstone said withdrawal requests at its flagship private credit fund fell materially in early Q3, following investor redemptions that reached 10% of shares in Q2. The fund repurchased 5% - its standard quarterly limit - in response. At the same time, Blackstone drew nearly $70 billion of inflows across its businesses during the quarter, while institutional demand for private credit remained steady even as fundraising from wealthy individuals stayed subdued.
The Marsh survey suggests insurers are looking beyond the traditional focus on loans to private-equity-backed companies. Insurers reported intent to participate more in investment-grade direct lending, private placements, asset-based finance and structured credit, diversifying their exposure within private credit strategies.
Yet the push from insurers does not come without internal reservations. About two-thirds of surveyed insurers flagged the shrinking premiums they receive for locking up capital and tighter spreads as a concern. More than half pointed to weakening underwriting standards or looser covenants in the market. Those responses underscore the industry’s challenge: demonstrate that private loans still offer sufficient excess return to justify extended lock-ups and valuation uncertainty.
Growing—and more active—secondary markets are helping provide liquidity options. GCM Grosvenor raised $1.2 billion for its first dedicated private-credit strategy, while Ares launched a private-credit secondaries fund that attracted $7.1 billion. These vehicles enable market participants to buy seasoned portfolios from investors seeking cash, rebalancing exposure, or who are unwilling to tolerate extended holding periods - a dynamic particularly relevant for high-net-worth clients.
Established direct lenders continue to originate and refinance private debt. Apollo Debt Solutions BDC recorded roughly $1.3 billion of private debt originations in the second quarter, largely concentrated in first-lien loans. Ares Capital refinanced about $709 million of direct-lending debt through a collateralized loan obligation, continuing capital deployment in the sector.
The expanding role of insurers as private-credit allocators has attracted regulatory attention. Europe’s insurance supervisor is reviewing issues including private equity ownership, affiliated investments, and reinsurance arrangements that could shift risks between insurers and related asset managers. That supervisory focus highlights potential regulatory constraints as insurers scale their exposure to private credit.
Overall, the market appears to be evolving toward investors with a higher tolerance for limited exit options and longer time horizons. At the same time, capital remains available to private lenders and buyers of seasoned portfolios, but managers will need to address concerns about compensation for illiquidity, underwriting robustness, and covenant protection to sustain allocations from both insurers and other institutional sources.