Portfolio Finance: An Opportunity for Enhanced Spreads Through IG Credit

Portfolio finance offers a number of potential benefits for insurers seeking to generate enhanced spreads at scale in a growing market.

Yields across fixed income are elevated, but many insurance companies are struggling to generate attractive spreads through traditional investment grade (IG) and high yield markets. This challenge is perhaps most evident in IG corporate credit, where current yields remain high relative to the past 25 years (Figure 1), while spreads are exceptionally tight.     
 

Figure 1: Yields Remain Elevated Across Fixed Income

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Sources: Barings, Refinitiv DataStream. As of September 30, 2024.     
 

With spreads across public fixed income markets at or near historical tights, insurers seeking to provide more competitive pricing are increasingly looking to private markets for solutions. This is where portfolio finance comes in—little-known and less-understood, the asset class is garnering increasing attention from insurance investors for its ability to offer enhanced spreads through IG-rated investments.

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Ken Griffin, CFA, ASA, MAAA Head of Insurance Solutions

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Dadong Yan Head of Portfolio Finance

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