The majority (59%) of global LPs expect to take a more integrated approach to their public and private credit allocations within five years, up from 35% today, according to research from Benefit Street Partners (BSP).
BSP’s research surveyed 135 senior investment professionals at asset owners across North America, Europe, APAC and the Middle East with a combined AUM of $8tn.
The growth of private credit has led to significant overlap with public markets, as public and private credit funds increasingly share borrowers, risk profiles and co-investments. BSP says that with private credit now a core pillar of institutional portfolios, LPs are exploring ways of managing their credit allocations more holistically.
The research shows that over the next five years, a fifth (19%) of LPs expect to have achieved full public-private credit integration in their portfolios, up from 5% today. Over the same period, 40% expect to be in the process of taking a more integrated approach, up from 30%.
However, BSP says that LPs are aware of the practical issues that may hinder convergence. When asked about the key barriers to unifying management of public and private credit portfolios, 65% cited the liquidity mismatch and 52% highlighted challenges related to transparency in underlying assets and pricing.
These concerns far outweighed considerations such as the reluctance of internal teams to merge (19%) and the lack of appropriate governance structures and processes (17%).
