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The post-COVID era has redefined the credit landscape. Higher base interest rates, more dynamic private markets and persistent macro and geopolitical uncertainty have reset expectations for institutional investors.
Almost 95% of institutional investors now hold private credit in their portfolios and that investment shows no sign of slowing. At the same time, investors have been reengaging with public fixed income markets, according to Nuveen’s EQuilibrium survey.
The boundaries between public and private credit are dissolving. Sophisticated investors no longer evaluate these markets in isolation.
This shift reflects deeper structural changes. Over the past 25 years, corporate lending has steadily migrated from banks to nonbank and private lenders. Regulatory reform and capital constraints have accelerated this trend, fueling innovation across public and private credit structures. To thrive in this new architecture, credit market participants must move beyond historical silos and embrace the full opportunity set with an integrated, agile approach.
Re-establishing public credit's structural role in institutional portfolios
After years of being overshadowed by private markets, public credit is seeing renewed demand. In a higher-yielding environment with more dislocated market opportunities, investors are rediscovering the value of liquidity, flexibility and active management.
Public credit yields have reset well above long term averages following the 2022–2023 spike in inflation and subsequent rate hikes by the U.S. Federal Reserve and central banks in Europe, the U.K. and Japan. At the end of March 2025, the yield-to-worst on the Bloomberg U.S. Aggregate Index stood at 4.6%, compared with an average of just 2.5% from 2010 to 20191. The Bank of Japan raised interest rates to a 17-year high in January 2025.2
This recalibration is driving renewed interest in public credit. Almost half of investors in last year's EQuilibrium survey indicated plans to increase allocations to public fixed income markets over the next two years. Investors who previously relied on private credit for yield now recognize that public markets can also generate robust income, with the added benefits of liquidity and transparency. Public credit has again become an attractive option for institutions seeking to rebuild fixed income allocations without sacrificing return potential.
At the same time, issuers, bankers and asset managers are beginning to treat public and private credit interchangeably. Issuers, seeking best execution, frequently explore both public and private pathways in parallel (more on this topic in the section Executing with Agility in a Unified Framework). Asset managers are reorganizing teams to evaluate opportunities through a wider lens. This shift promotes a new mindset — one that evaluates exposures based on value and portfolio fit, not labels.
Constructing credit portfolios with an open floorplan
Investors are embracing more flexible approaches to credit, reallocating across sectors and liquidity profiles in pursuit of relative value and better risk adjusted returns.
Institutional investors’ ability to diversify credit exposure now goes beyond varying duration, ratings, countries and sectors. It involves balancing liquid and illiquid assets for better liquidity management, blending fixed and floating rate exposures to hedge macro risks and selecting credit structures — such as broadly syndicated loans, collateralized loan obligations (CLOs), direct lending or investment grade private credit — based on relative value and execution. Figure 3 shows some of the options investors have for exposure to senior secured loans and asset-based lending.
This open mindset is also expanding into other segments of the credit market. Once a niche corner of the alternative credit market, investment grade private placements have become a more prominent fixture in today’s credit architecture, offering private alternatives with potential yield premiums, customizability and covenant protections. Private debt as a whole now represents approximately $2 trillion3 in the alternative credit market. This scale is further evidence that the public-private divide is giving way to a unified, opportunity-driven credit ecosystem.
This open mindset is also expanding into other segments of the credit market. Once a niche corner of the alternative credit market, investment grade private placements have become a more prominent fixture in today’s credit architecture, offering private alternatives with potential yield premiums, customizability and covenant protections. Private debt as a whole now represents approximately $2 trillion3 in the alternative credit market. This scale is further evidence that the public-private divide is giving way to a unified, opportunity-driven credit ecosystem.
I love how dynamic private credit can be and the opportunities that fit within it, whether it is direct lending, balance sheet lending, distressed or bespoke financing”
Reengineering how credit gets delivered
The mechanics of credit investing are evolving — from product wrappers and liquidity terms to how capital is deployed and scaled. Investors and managers alike are welcoming structural innovation to improve efficiency, accelerate deployment and align credit strategies with changing client demands.
Regulatory developments are reshaping institutional credit. Basel III Endgame, Solvency II and other frameworks are driving many banks and insurers to reevaluate their exposures, especially those that are illiquid, lower-rated or long dated. In response, asset managers are designing capital-efficient investment structures that help institutional clients maintain exposure to attractive segments of the credit market while optimizing for regulatory treatment. These include innovations like rated note feeders, credit-protected wrappers and semi-liquid funds.
With the rules around matching loosening as a result of Solvency UK, it gives us more opportunity to look at things in private credit that we hadn’t previously, particularly in U.S. markets where callability had been a problem.”
An example of innovation is the growing use of structured finance vehicles to address the needs of many institutional investors for large-scale investments that also meet capital efficiency requirements. In a recent transaction, a consortium of like-minded insurers raised more than $1 billion for Commercial Property Assessed Clean Energy (C-PACE) investments — a financing approach in the U.S. that supports sustainability and resiliency measures for commercial buildings.
New vehicles are also being engineered for a broader institutional investor base to meet growing demand for flexibility, yield and liquidity in a unified framework. Public-to-private wrappers allow immediate deployment into liquid assets and rotation into illiquid assets over time, mitigating cash drag. Semi-liquid structures, including interval funds and non-traded BDCs (closed-end funds that provide financing to businesses), offer quarterly liquidity while accessing private credit. CLO ETFs offer a liquid vehicle to access exposure to actively managed portfolios of securitized broadly syndicated senior loans. They are proving to be attractive tools for balancing return goals and governance needs.
Vehicle design is also advancing to support tax efficiency and customization. From evergreen funds to co-investment sleeves and complex hybrids, managers are delivering tailored solutions.
The amount of sophistication and innovation in the system is driving new structures that enable an average institutional investor to invest in niche areas of credit and meet their regulatory requirements. That innovation is going to continue to accelerate.”
Executing with agility in a unified framework
To capitalize on the opportunities in today’s credit markets, participants across the credit ecosystem are rethinking team structures and emphasizing tactical responsiveness.
The convergence of public and private markets has structural and operational implications across origination, asset allocation and portfolio construction. This blurring of lines has broad implications for issuers, banks, allocators and investors — each are adapting operations and objectives to match the new environment:
• Dual-track issuance: Issuers now routinely explore both public and private execution pathways. This dual-track approach is particularly visible in the asset-backed securities (ABS) space, where institutions increasingly anchor, negotiate and hold diversified collateral pools — roles once dominated by public securitizations. A notable example is the Santander Drive Auto Receivables Trust 2024-2 transaction, where Santander issued a mix of publicly offered and privately retained tranches totaling nearly $1.5 billion.
• Manager-bank partnerships: Banks are increasingly forming joint ventures with private credit managers that allow the managers greater access to the bank’s loan origination, a model seen in the longstanding arrangement between Deutsche Bank and DWS. In parallel, banks are offering secured financing to private lenders, providing a stable and cost-effective source of leverage for scaled private credit platforms.
• Cross-platform manager partnerships: Partnerships such as Capital Group and KKR, or State Street and Carlyle, highlight a growing trend of large-scale collaboration between public and private market specialists. These relationships aim to expand distribution, deepen research capabilities and enhance multi-asset execution.
• Multi-asset credit mandates: Multi-asset credit mandates that allow managers to allocate across public and private markets are gaining traction. Interval funds, which are the most common structure for public-private multi asset credit investments in the U.S. for example, have grown approximately 40% per year over the past decade with the market now eclipsing $100B.4 These structures allow asset managers to dynamically allocate based on relative value, combining high-conviction views across high yield bonds, senior loans, emerging markets debt and securitized credit, with the ability to tactically allocate to less liquid credit opportunities as they arise.
The growing fluidity between public and private credit markets is also prompting organizational change within asset managers and asset owners:
The growing fluidity between public and private credit markets is also prompting organizational change within asset managers and asset owners:
• Team alignment: As credit markets converge, many asset managers are rethinking how they staff and organize investment teams. Public and private credit teams are collaborating more frequently — or in some cases, merging — to respond faster when deals cross traditional boundaries. This integration fosters collaboration among complementary skill sets: public credit analysts often bring deep sector expertise, while private credit analysts contribute expertise in structuring, covenants and credit agreements. Combining these capabilities can lead to more holistic underwriting and sharper relative value assessments across the credit spectrum.
Six years ago, there were six people in the whole investment team. Now there is fifty, and it will keep increasing. That’s a byproduct of having to specialize more within each asset class.”
• Functional integration: Beyond organizational charts, institutional investors are adapting the internal mechanics of portfolio management to enable faster, better-informed decision-making across the full liquidity spectrum. Nuveen’s EQuilibrium survey, for example, shows that teams are increasing the cadence of investment meetings and improving cash flow coordination.
• Manager evaluation: As deal complexity and borrower dispersion grow, institutions are placing greater weight on underwriting rigor and execution flexibility. For asset managers, agility now includes not just asset selection and timing, but execution readiness — being able to source, analyze and deploy capital with speed and precision. This requires underwriting expertise across different deal structures, technology to integrate performance reporting across public and private holdings, and investment teams that are truly cross-functional.
From blueprint to buildout
As public and private markets continue to blur, success will hinge on more than access to opportunity — it will require the ability to act decisively across structures, teams and strategies.
The forces reshaping institutional credit — macro dynamics, borrower behavior, regulatory shifts and convergence — demand new approaches. Indeed, institutions must move beyond isolated sleeve management and adopt an integrated, agile approach to credit investing.
Building dynamic platforms that leverage both public and private exposures based on relative value, structure and liquidity will be a key differentiator in meeting investor demand for dependable income and outperformance. Doing so requires more than rethinking asset allocation, it demands organizational change — unified teams, integrated risk frameworks, standardization, modernized systems and governance processes that enable effective investment decision-making. Those who embrace this new blueprint will be best positioned to navigate uncertainty and capture new opportunities.
More insights
Endnotes
1 Bloomberg
2 Bank of Japan, 24 Jan 2025
3 Prequin as of November 2024
4 Morningstar
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