Victory Park C… - Tue, 03/26/2024 - 15:16

Managing Complexity in Private Credit

The growth of insurance company allocations to private credit has brought attention to the added complexity that comes with increased exposure to the asset class, particularly as it relates to liquidity and transparency. Because insurance companies are subject to stringent regulatory oversight and risk-return requirements, it’s to be expected that risk considerations are top of mind as insurers have gradually increased allocations to private credit. However, there are several factors at play in the private credit markets that can help assuage some of those concerns. 

Liquidity benefits & considerations

In addition to its relative value compared with other public fixed-income classes, one of the key advantages that the private credit markets offer insurers is an illiquidity premium. Insurance companies first need to ensure that the nature of their liabilities allows them to take advantage of the illiquidity premium. Then, to mitigate concerns about potential liquidity risks during periods of market stress, it’s critical to focus on defensive characteristics when assessing private credit opportunities. 

With interest rate uncertainty, floating rates offer an inflation hedge, and higher SOFR floors can take advantage of a decreasing interest rate environment. Senior secured loans with current cash interest, shorter loan terms, and strong covenants can also help mitigate illiquidity risk. Strict covenants provide structural protection, whereas covenant-light deals or covenants in name only can present additional downside risk to lenders. 

In the most recent rising interest rate environment, we saw that senior secured, floating-rate private credit loans with strong covenants tend to be less volatile when compared to other fixed-income asset classes. Further, in a rising default environment, asset backed loans can have high recovery rates. Essential to managing downside risk with asset backed loans is ensuring that loan collateral is diversified, and that both issuers and borrowers have capital at risk to better align interests with the lender.

Investment transparency

Compared with corporate bonds, private credit investments can offer more transparency. At Victory Park Capital, we have a robust portfolio monitoring framework that includes frequent touchpoints with management teams and, oftentimes, Board observation rights. While corporate bondholders monitor covenants, they do not have the benefit of real-time reporting and access to the company’s management team for additional transparency. 

In the current economic environment, it’s important to consider private credit managers who have performed multiple economic cycles, have workout experience, and have active risk management processes. On top of that, managers with private credit and insurance expertise can help maximize insurers’ risk-based capital benefits and improve target return profiles. 

There is a high demand from healthy companies seeking loans from non-banks, and managers who have a strong track record and brand recognition will have access to higher-quality investments despite increased industry competition. Taking these considerations into account when assessing potential opportunities can help mitigate risk in insurance companies’ private credit portfolios. 


Connell Hasten is a Partner at Victory Park Capital Advisors, LLC (“VPC”), an SEC-registered, established credit manager, and oversees the firm’s insurance services platform. Previously, Mr. Hasten was a managing director at EquiTrust Life Insurance Company, where he oversaw a large portion of private and public debt and equity investments. Prior to that, he was a director at Guggenheim Partners and served as a portfolio manager, primarily responsible for investment portfolios on behalf of insurance companies. 

VPC was founded in 2007 and is headquartered in Chicago, Illinois, with additional resources in New York, Los Angeles, San Francisco, and London. VPC provides custom financing solutions across the private capital spectrum, focusing on companies with strong corporate governance and a compelling growth trajectory. VPC invests in emerging and established businesses across various industries worldwide. For more information, please visit or contact Connell Hasten:


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