TIAA Global Asset Management
 Brian Roelke

Private Debt Video: Opportunity for yield and diversification
Private debt offers institutional investors the potential for higher yield, enhanced diversification, and lower volatility. TIAA research shows how two categories of private debt – middle market senior loans and mezzanine debt – increased portfolio risk-adjusted returns as alternatives to traditional asset classes. Watch the Video


Private debt: The opportunity for diversification with illiquid assets

Private Debt white paper: The opportunity for diversification with illiquid assets
Private debt has emerged as a potential solution for institutional investors confronting low interest rates, rising asset correlations, and volatile markets. The asset class offers the opportunity to enhance diversification and improve risk-adjusted returns when added to stock-bond portfolios. Several categories— middle market senior loans, mezzanine debt, and investment grade private placements—historically combined low correlations, higher yields, and less credit risk than similarly-rated public debt. For buy-and-hold investors, private debt’s illiquidity can be a reasonable tradeoff for a more attractive risk-return profile.

To learn more, read our white paper Private debt: The opportunity for diversification with illiquid assets


Middle Market Senior Loans

Leveraged loans to middle market companies are senior in the capital structure and rated below investment grade. Historically, they have provided yields higher than broadly syndicated loans and approaching those of public high-yield bonds, with less volatility, lower default rates, and higher recovery rates. A unit of TIAA, Churchill Asset Management’s investment team averages over 20 years of industry experience. The team invests in private “club” loans, which have offered an attractive risk-return profile relative to broadly syndicated bank loans or similarly-rated public debt. Churchill has invested about $5 billion in more than 425 middle market direct loan transactions since 2006.

Not created equal: Surveying investments in non-investment grade U.S. corporate debt  (PDF)

European direct loans: A familiar asset dressed in a different currency? (PDF)


Mezzanine Debt

Usually invested as unsecured subordinated debt or second lien term debt, mezzanine loans are attracting institutional investor interest with advantages over public fixed-income sectors. They typically are used in leveraged buyouts to fill the capital structure gap between the sponsor’s equity capitalization and optimal senior debt levels. Mezzanine loans have offered higher yields reflecting their junior debt position, but they have carried less risk than spreads would suggest due to support from deal sponsors. Risk-adjusted returns have tended to be significantly better than many other forms of private and public debt.


Investment Grade Private Placement Debt

Private placement loans historically have offered higher yields and lower credit risk than traditional fixed-income investments. These loans have a fixed coupon rate and term structure like traditional bonds, but enjoy additional protection through borrower covenants and monitoring. With investment-grade ratings of BBB- or higher, private placements have held a yield advantage over public bonds of similar credit quality and duration. In addition, default and loss rates have been a fraction of those for similarly-rated public debt.

Why TIAA is a global leader in private capital

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