U.S. life insurance and annuity issuers might be sticking with strong private credit assets and other alternative asset options, in spite of the commotion in the retail end of the market.
Executives from BlackRock, JPMorgan and Morgan Stanley talked about institutional investors' appetite for private credit assets this week during calls they held to go over results for the first quarter with securities analysts.
The first quarter ended March 31. Globe Life is on track to be the first life insurer to post its earnings. It says it will post its results sometime after 4 p.m. Eastern Daylight Time April 22.
Larry Fink, the CEO of BlackRock, said the next big financial downturn will probably cause problems for the private credit markets, as it will for other markets, but that the recent retail private credit market turmoil is improving conditions for institutional investors, by increasing the "spread," or gap, between the returns they can get on their private credit investments compared with the returns they could get on Treasury securities with similar durations.
"Institutional client demand for private credit continues to grow, particularly at insurance companies," Fink said.
About 85% of BlackRock's private credit asset business is associated with institutional investors, and working with big, experienced investors should lead to 'greater capital durability across market cycles," Fink said. "This enables us to remain an active investor across market environments, which should ultimately lead to better long-term risk-adjusted returns."
One existing insurance client agreed in the first quarter to invest billions of dollars in new, high-grade private credit arrangements, and another insurance company has a big private credit deal in the pipeline, Fink said.
Ted Pick, the CEO of Morgan Stanley, talked about private credit assets "coming of age."
The market for investment-grade private credit assets is still much bigger than the market for non-investment-grade private credit assets, Pick said.
"And the reality is, with the spreads having widened a bit, there is an institutional bid," Pick said.
Top institutional asset managers have been coming in because they see they can earn better returns, Pick said.
"During the quarter, notwithstanding all of the press and discussion, the system was a better buyer of alts," he said. "And so that is an important indicator that folks want to be participating at the right price with the right manager."
Jamie Dimon, JPMorgan's CEO, predicted that the next severe downturn will cause stress for private credit investors but not private-credit-related systemic risk.
But, both at corporations and in consumers' households, "debt is not too high," Dimon said. "Most of the excess debt is in government debt at this point. Of course, we always worry about what's going to happen if there's a cycle. I think it will be worse than people expect."
Chances are one industry will surprise people and have worse problems than people expect, Dimon said.
"Something always happens that people don't expect in credit," he said.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.