Private debt is a potential solution for institutional investors confronting low interest rates, rising asset correlations, and volatile markets. This relatively illiquid asset class historically has offered higher yields with less credit risk than similarly-rated public bonds. A TIAA analysis found that middle market direct loans and mezzanine debt increased portfolio risk-adjusted returns when combined with public stocks and bonds. For long-term investors, private debt’s illiquidity can be a reasonable tradeoff for a more attractive risk-return profile relative to traditional asset classes. A new TIAA white paper explores the factors causing increased demand for private debt:
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