Insurance companies
Insurance companies prioritize stability, liability matching and capital efficiency. For insurers operating under risk-based capital frameworks, ABF can be more capital-efficient due to its collateralized nature and its ability to achieve high ratings. ABF can also help align insurers’ duration, cash flow and risk profile of long-term policyholder obligations. Because of their focus on predictable income, capital preservation and regulatory capital optimization, investment-grade private credit—a significant portion of which is asset-based—has become a key area for many insurance companies.
Strategic rationale
Insurers aim to match long-dated liabilities with stable assets, seeking yield enhancement relative to public investment-grade bonds without materially increasing risk. Regulatory capital requirements under Solvency II (Europe) and the National Association of Insurance Commissioners (U.S.) influence how insurers allocate assets by assigning higher capital charges to riskier investments. As a result, careful structuring of portfolios and transactions are essential to balancing return objectives with capital efficiency.
Core allocation
Typical exposures include senior secured direct lending as well as ABF across receivables, leases and trade finance, and specialty finance in areas such as aircraft leasing or mortgage servicing rights—each offering predictable, collateralized cash flows.
Preferred structures and portfolio impact
Insurers favor rated secured lending executed through bankruptcy-remote SPVs for structural protection and compliance with rating agency and regulatory requirements. They commonly invest via SMAs that are tailored vehicles designed for insurance general accounts. The result is stable, long-dated income, enhanced capital efficiency and low mark-to-market volatility, supporting solvency ratios (i.e., available capital to required capital ratio) and policyholder obligations.
Pension funds
Pension funds are steadily increasing allocations to private credit—typically 3–6% of total assets, with leading systems targeting 5–10%11 over time. According to S&P Global Market Intelligence, 77 of 118 U.S. pension funds remain under allocated, suggesting continued growth potential. The asset class offers a compelling mix of yield enhancement, diversification, and downside protection, appealing to pensions seeking equity-like returns with lower volatility.
Strategic rationale
Unlike insurers, pensions don’t match liabilities directly but view private credit as a core income and diversification strategy suited to their long-term, patient capital. Their tolerance for illiquidity aligns with private credit’s relationship-driven, hold-to-maturity nature. Amid funding pressures and persistently low public yields, pensions turn to private credit to boost returns and reduce equity reliance. The collateralized structure of asset-based finance adds further protection—particularly valuable as corporate defaults rise—offering enhanced downside mitigation.
Core allocations
Allocations span direct lending (as a bond replacement), infrastructure debt (long-dated, contractual income), and opportunistic or distressed credit to capture excess returns from market dislocations. ABF exposure offers further diversification benefits and downside protection by providing access to real economy.
Preferred structures and portfolio impact
Pension funds continue to allocate capital across direct lending and ABF strategies to capture stable income and diversification benefits. But some are moving beyond senior debt to invest in mezzanine and equity tranches of ABF capital structures, seeking enhanced returns.
Family investors
Family investors are increasing allocations to private credit to capture yield and diversification. In today’s market, yield serves as a form of liquidity, providing regular income distributions that help offset longer holding periods. At the same time, private credit offers structural protections for debt investors—including covenants, collateral, and seniority in the capital structure—which enhance capital preservation.
Private credit’s bespoke and flexible structures align well with families’ long-term objectives, delivering steady cash flows and exposure to real-economy assets without materially compromising liquidity. Family investors typically pursue direct equity opportunities, while their private credit exposure tends to come through co-investments and funds offering institutional-quality underwriting and diversified borrower and strategy exposure.
Given their flexible, patient capital base, larger family offices are increasingly building direct origination or partnership capabilities, whereas smaller families tend to favor multi-manager or semi-liquid vehicles to achieve stable income and preserve wealth over time.
Sovereign wealth funds
Sovereign wealth funds (SWFs) are increasing allocations to private credit as well. Leveraging scale and long investment horizons, SWFs invest through large mandates, strategic partnerships and joint ventures. Their typical investments span direct lending and structured and opportunistic credit, with an emphasis on control, customization and risk-adjusted returns over public market volatility. Private credit’s longer duration and illiquidity align well with sovereign funds’ long-term investment horizons, while partnerships with leading managers provide access to high-quality deal flow and scalable deployment opportunities across regions and sectors.