Unlisted loans held against long liabilities, paying an illiquidity premium and shifting risk from the market to the valuation itself.
Private credit means loans extended outside the listed bond market, to mid-sized companies or to projects, and held to maturity. Life insurers and asset-manager-backed reinsurers have sharply increased their exposure over the past decade for a clear economic reason: their liabilities are long and predictable, so they need no daily liquidity and can capture the premium the market pays to those who give up the right to sell. The risk does not disappear, it changes nature. It stops being a daily observable price risk and becomes a valuation and selection risk, since the value of an unlisted loan rests on a model rather than a quote, which smooths reported volatility without reducing the eventual loss. Added to that are a correlation with the economic cycle stronger than the rating suggests, and concentration by manager, with several insurers potentially holding the same borrowers through different vehicles. European and American supervisors have made it an explicit focus of their prudential reviews.
The merger of Apollo Global Management and the insurer Athene, completed in January 2022, formalized a model in which a private credit asset manager and a holder of annuity liabilities sit inside the same entity, a model widely imitated since across the American and Bermudian annuity markets.
private credit, dette privée, crédit privé, private debt