How investors and issuers are adapting to structural changes shaping the next era of credit. From Anders Persson Chief Investment Officer, Head of Fixed Income, Nuveen
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 2019. The Bank of Japan raised interest rates to a 17-year high in January 2025.
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.
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CONSTRUCTING CREDIT PORTFOLIOS WITH AN OPEN FLOOR PLAN
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.
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 trillion 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.
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 totalling 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. 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.
