Pensions Looking for Private Alternative Assets
Liability-Driven Investing (LDI) and Asset-Liability Management (ALM) strategies sit at the heart of how insurers approach pension risk. LDI strategies emerged as a financial equivalent of cautious oversight, designed to stabilize pension obligations against market volatility through allocations to long-duration bonds and derivatives. But PRTs can move risk entirely off the sponsor’s books. Once liabilities are moved, insurers rely on precise ALM: carefully constructing portfolios that align asset cash flows with pension payment streams. Insurers’ core competency is cash flow matching, supported by asset management and structuring expertise. Furthermore, regulatory frameworks such as Solvency II matching adjustments further incentivize insurers to blend public fixed income with private alternatives to deliver predictable returns and capital efficiency.
But PRTs are no longer the only solution. With thousands of plans now fully funded or in surplus, sponsors are looking for more than just a one-way ticket off the risk rollercoaster. Some need liquidity to meet obligations. Others want to boost returns without giving up control of their assets. This is where insurance companies, especially those with alternative asset management and structuring expertise, are stepping up as partners and not just risk absorbers.
Enter tools like funding agreements, which allow pension plans to tap insurer balance sheets for customized assets that offer yield and liquidity without fully transferring risk. These transactions provide a yield pickup over public IG credit and can be a useful tool to help sponsors smooth cash flows or fund benefit payments over time. At the same time, insurers’ need for long-duration, predictable assets is also driving increased origination in private investment-grade credit, providing pensions with yet another flexible option to enhance returns and diversify their portfolios.
As sponsors offload pension liabilities, insurers face a strategic challenge: how to redeploy capital into assets that deliver yield, duration, and predictability. Over the last few years, demand has grown meaningfully as insurers and traditional public credit investors have converged in search of incremental yield and asset-liability management solutions. The versatility and scale of these transactions have made them an accretive addition to insurers’ reinvestment strategies, bridging yield pickup and duration matching at scale. This convergence of scale, customization, and predictable returns is why we believe incorporating private investment grade assets can be an essential complement to LDI strategies.
This momentum has been supported by a large secular and structural shift across global markets, with investors seeking more risk-adjusted spread, issuers demanding customization and flexibility, and broader access enabling diversified exposure to private markets at scale. For example, the traditional IG credit market has evolved rapidly. The corporate universe has nearly tripled over the past five years while demand for financing continues to outpace supply. Even a modest shift by borrowers toward private IG could represent billions in new issuance annually. Much like the early days of direct lending, investors are looking for yield pickup, more alignment, and less benchmark distortion.
Private IG credit refers to privately negotiated securities issued by high-quality borrowers across corporate, asset-based finance, and real assets. The key distinction from public IG is liquidity: investors accept reduced liquidity in exchange for higher return potential, exclusive origination, and more tailored structures with downside protection. For borrowers, these instruments provide flexibility in designing maturities, amortization schedules aligned to cash flows, and unique features such as embedded options like calls and puts. These transactions are often used to fund large and/or strategic capital needs like an infrastructure project for example. Additionally, many companies look to them for structured solutions that can improve capital-heavy balance sheets and optimize shareholder value.
Sliding into Stability: A Smooth Finish
For pension sponsors, the question is not if, but when and how to act. In our experience, good outcomes can be achieved not by simply off-loading risk, but by partnering with insurers whose core business is managing long-term liabilities. Insurers can bring regulatory oversight, balance sheet strength, and sophisticated portfolio construction to the table. By working together, sponsors can transfer risk, access new yield opportunities, and design solutions that deliver long-term stability for plan participants.
As more plans consider their next steps, market experience and partnership will be critical differentiators. Selecting the right team, one that combines execution scale with the ability to thoughtfully originate accretive assets and manage relationships, communication, and reputational considerations can make all the difference in ensuring a smooth and successful transition.
We believe now is the time to step onto the polished floor, grab the sunglasses, and accelerate into a more predictable future. Engage your advisors, explore your options, and start the conversation about how PRTs, funding agreements and sophisticated reinvestment strategies can transform your balance sheet.
