Institutional investors are increasingly considering investments in illiquid private markets, including private placements, given the relatively higher yields on offer, according to global investment management firm Barings, a subsidiary of MassMutual Financial Group. 

These markets can provide a range of possible benefits, particularly to insurance firms and pension funds, ranging from an illiquidity premium over public markets to improved diversification, risk protection, and positive asset-liability matching characteristics, the authors wrote in the firm’s latest insights, “The Growing Opportunity in Private Placements.” 

At the same time, the investor base for private placements has expanded globally, with demand increasing in both Europe and Asia as investors seek higher yields and diversification. 

“The opportunity to earn a premium in exchange for giving up public liquidity can be particularly attractive to investors with long-term liabilities that do not need all their portfolio in liquid assets,” wrote Barings. 

Private placements are essentially notes and loans made exclusively to qualified institutional investors. Private placements, which have traditionally been an investment grade (IG) market, have intermediate to long maturities and are typically fixed rate.   

For issuers, financing through the private market provides significant benefits, ranging from secrecy considerations to the flexibility of issuing debt in a variety of sizes, maturities, and currencies. 

Private placements, when compared to public corporate bonds, can provide additional exposure to consumer sectors, social housing, sports, real estate, and a variety of businesses. 

Barings stated that over the last five years, their private placement strategies had provided a weighted average spread premium of 100 basis points above the Barclays IG Corporate Index.