Julien Halfon


“You not only want specialists to go out and find the right loans but specialists to go out and get the money back if there’s an issue.” Julien Halfon, BNP Paribas Asset Management


portfolio institutional: How popular is private debt among institutional investors? Gerald Wellesley: It has become a default option for schemes that are not crazy about the yields they are getting from their fixed income portfolio. Those that are well funded tend to stay away from private debt, not least because they might need the liquidity if they approach buy-out faster than they expect. They may also not need the yield. It has become extremely popular with under-funded schemes. Private loans can yield between 4% and 8% whereas investment-grade corporate bonds pay an awful lot less. Anand Kwatra: Insurers are attracted to private debt for the illiquidity premium. Sometimes it is for the improved return on capital because these assets can attract a lower capital charge relative to a corpo- rate bond.


The key thing is that it improves your cash-flow matching, while the pricing advantage is another driver. Insurers are using private debt to back individual and bulk purchase annuities. In the bulk annuity space, their allocations to private debt may typically range from 40% to 60%. PI: What impact have insurers chasing similar assets had on yields? Kwatra: In longer dated assets, like infrastructure, yields are compressing. But it is not necessarily about just measuring the illiquidity premium; it is also finding long duration assets.


6 October 2019 portfolio institutional roundtable: Private debt


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