Investment-grade private credit market deep dive

The investment-grade private credit market, for decades a core asset-liability matching tool for large US life insurance companies, is undergoing a multifaceted evolution. The asset class is growing, with new investors, an expanding set of transaction types, and private investments increasingly sought out as a driver of public diversification and returns within investment-grade fixed income allocations. 

To navigate this changing opportunity set, we believe it is critical for investors to have a wide range of deal sourcing partners, deep underwriting capabilities, and experience across both public and private fixed income markets. Likewise, as the asset class continues to grow and evolve with new opportunity sets and investor use cases, we think it’s crucial for asset owners to understand where it fits in the private credit universe. In this piece, we dive into the most frequently asked questions about today’s investment-grade private credit market.

What is investment-grade private credit?

The investment-grade private credit market primarily includes privately negotiated 4(a)2 investments issued across corporate, infrastructure, and ABS transaction types. Institutional clients traditionally view these allocations as an extension of their core public fixed income exposure with the following potential benefits: incremental spread, enhanced portfolio resilience, and additional diversification. Moreover, the opportunity set appears particularly compelling in the current market environment due to the following:

• Higher-than-average illiquidity premiums: Relative to history, today’s investment-grade private credit spread premiums versus public comps are attractive, mainly driven by the heightened interest-rate environment. For context, the private placement agented market has offered a spread premium of approximately 50 basis points (bps) relative to public comps for much of the last decade. However, in the past 12 months, the relative value has been even higher at approximately 70 bps.¹ Investors with direct origination capabilities have the potential to achieve an even higher premium than what is offered in the agented market. 
• Growing and diversified opportunity set: Deal pipelines are growing, with opportunities present across sectors (corporates, financials, sports teams, utilities, infrastructure, and ABS), geographies (US, Europe, and Australia/New Zealand), and tenors (ranging from 2 – 20+ years). We believe managers with expertise in sourcing, underwriting, and structuring deals are strongly positioned to construct portfolios to achieve asset owners’ unique objectives.
• Embedded protections in an uncertain environment: A key feature of private placement debt is the potential for downside mitigation covenant protections, which can insulate investors as market environments change. In today’s higher interest-rate environment, prepayment protections, such as make-whole penalties, can help investors lock in current yields over the economic lifetime of the investment. 

How large is the investment-grade private credit market? 

The investment-grade private credit market has generated approximately US$100 billion in annual issuance¹ per year, on average, over the past decade. The average life of the market is approximately 10 years, resulting in an overall market size of about US$1 trillion, compared to the public investment-grade market, which is roughly US$6 trillion in size.¹

In 2024, investment-grade private credit deal volumes increased approximately 20% year over year¹ – reaching record levels both in terms of overall market issuance and average deal size. Deal volumes in 2025 are on par with those in 2024, and we expect this growth trajectory to persist as investment-grade borrowers continue to seek alternative funding sources outside of their traditional banks.

What are its key characteristics? 

As its name implies, the vast majority of the market is investment-grade rated (95%+) with a small portion having a below-investment-grade credit profile.¹ Corporate entities have long been the most prominent issuers in the market (~60% of issuance on average).² However, infrastructure and ABS deals have been transacted in the investment-grade private market since its inception, and we are seeing an increase in the supply and demand for these assets.

As illustrated in Figure 1, tenors are offered across a wide maturity spectrum, and transactions can be structured with both fixed and floating rate coupons. Historically, investment-grade private credit investments often centered around the 7 – 15-year tenor range. However, the number of short tenor deals has grown as issuers have sought to limit all-in costs in the higher interest-rate environment and as new buyers with shorter-tenor appetites have come into the market. This has benefited investors with diversified tenor appetites, as they have been able to partner with issuers on these attractively priced shorter deals.

Figure 1

How are investment-grade private credit deals sourced? 

Deal access in the investment-grade private credit market is mainly driven by long-standing relationships, similar to other parts of private credit. But unlike traditional private credit, for those with access, deal sourcing may occur across a number of different channels, including the broadly agented market, club/narrow syndications, and direct origination. Club and directly originated transactions offer further diversification, as well as potential structuring and relative value benefits, but participation in these deals often requires specific relationships and structuring expertise. It is important to note that agents do not assist with the credit underwriting process, as is the case with bank loans. Instead, they act purely as intermediaries, bringing issuers and investors together to complete the transaction. This makes credit underwriting expertise across sectors and through multiple credit cycles particularly important in this market.

We believe it is advantageous to have access to each of these channels, as it increases the investable opportunity set, which can be particularly important in periods when illiquidity premiums are compressed or supply declines. For example, in 2020, the agented market was compelling as public markets took a step back and illiquidity premiums were high. Conversely, 2021 was a strong time for club/direct origination.

Is there liquidity?

Though the investment-grade private credit market is traditionally viewed as a buy-and-hold asset class with most of the transactions occurring in the primary market, a secondary market does exist. The overall market experiences approximately US$100 billion annual issuance, on average, with US$2 – 3 billion of that volume occurring in the secondary market.³

Given valuations are not publicly available in this market, an investor’s ability to transact may be tied to their access to pricing information. We’ve partnered with two of the largest secondary trading platforms to value and provide additional insight into pricing and liquidity trends in the market. In addition to liquidity for individual deal transactions, portfolio liquidation events may also occur in the secondary market, as evidenced by the two examples below.⁴

• Example 1: An institutional asset owner sought to sell US$ 500 million of securities five days before a US holiday. A leading independent valuation provider previewed the portfolio with a handful of investors and was able to sell 62% of the portfolio in three days, 83% by week four, and 100% by week 10. Despite the higher-than-typical volume and the relatively short timeframe, more than 50% of the transactions were executed at the prior month’s valuation level, and the average variance across the transactions was less than 5 bps.
• Example 2: Another leading independent valuation provider was asked to assist with a liquidity exercise, which would require them to complete the entire transaction in approximately two weeks. They were able to execute 13 trades on day one across multiple buyers (~5) and finalized the remaining transaction before the end of the month. The average bid/ask spread was less than one basis point (although structured and distressed securities cleared above these levels).

Notably, investment managers with the ability to offer an open-end fund may also provide regular liquidity through periodic redemptions, natural liquidity via cash flows, and/or diversified portfolio construction (such as amortizing transactions and/or laddering of maturities).

How are securities priced in this market?

Consistent with public fixed income securities, investment-grade private credit investments are priced using the underlying treasury rate and appropriate credit spread, with an additional illiquidity premium component to reflect the less liquid nature of the asset class. The pricing is typically calculated via a yield analysis methodology, which involves using similar debt instruments (tenor, rating, etc.) to arrive at the appropriate illiquidity premium.

Wellington relies on two leading independent valuation providers to assist in our pricing efforts. Our arm’s-length valuation approach helps us gain comfort with the validity of our pricing data, given their access to the broad market, although we also employ our own internal oversight process as an additional risk lens. 

How are institutional investors accessing investment-grade private credit?

Historically, US insurers have been the primary buyers of investment-grade private credit assets. For regulatory charge reasons and due to their desire for portfolio customization, these asset owners have preferred separately managed accounts when outsourcing the management responsibilities. Importantly, as new investor types have increasingly participated in the market, we have seen interest in both separately managed accounts and commingled vehicles, depending on the asset owner’s objectives and requirements. 

In addition, asset owners are consistently seeking a more holistic approach to their public and private credit exposures. Across client types, this is increasingly leading to the convergence of public and private credit allocations. While the implementation of the solution may differ, the most common drivers for an integrated public/private portfolio include more 1) consistent objectives and guidelines, 2) efficient capital management, and 3) controlled diversification.

Figure 2 shows our framework for evaluating and meeting asset owners’ unique objectives across public and private credit markets.

Figure 2

Bottom line on investment-grade private credit

The investment-grade private credit market is evolving to serve new investor types, provide access to different kinds of transactions, and offer new solutions amid the growing intersection of public and private markets. In our view, investors in this new market can benefit from a combination of broad deal sourcing relationships, strong underwriting capabilities, and expertise across both public and private markets.

¹Sources: BofA Securities, Wellington Management, Bloomberg. | ²Based on Wellington Management experience transacting in the market. While many asset managers assign internal ratings to their investments, third-party Nationally Recognized Statistical Rating Organization (NRSRO) ratings are also available for more than 60% of the transactions in the market. This figure may be even higher for non-corporate deals, and we expect NRSRO coverage to increase as demand for these assets continues to grow. Similar to the public market, S&P, Moody’s, and Fitch will provide ratings for investment-grade private credit securities, and we also see ratings from Morningstar DBRS and Kroll. | ³Source: Wellington Management, secondary trading platforms. | ⁴These examples do not represent Wellington clients or deals Wellington was involved in, but rather are market examples for illustrative purposes only. Past performance is not necessarily indicative of future results.