How Investment-Grade Private Credit is Reshaping Fixed-Income Strategies

In an era of persistent inflation and elevated interest rates, investors are rethinking their traditional fixed-income strategies. With many public fixed income and credit markets priced to “perfection,” where can institutional investors turn for durable, high-quality yield with structural protections? Carlyle’s Justin Plouffe and Akhil Bansal take an up-close look at why investment-grade private credit is rapidly becoming the answer.

Justin Plouffe:

Although private credit markets are now a multi-trillion-dollar space, many still associate the asset class with below investment-grade loans to highly levered companies owned by private equity sponsors. But the business has changed rapidly. In the last few years, the fastest growing part of the business has been private asset-backed finance (ABF), which has increasingly made investment-grade quality investments available to private credit investors. Can you shed some light on this emerging area?

Akhil Bansal:

Let me start with why investors are interested in it. A lot, frankly, has to do with interest rates. For the better part of a decade, we were in a zero interest-rate policy environment. If investors wanted or needed to earn 7% or 8% returns, they were relegated to non-investment grade leveraged corporate cashflow lending.

Today, nominal interest rates are roughly 400 basis points higher than they used to be. If investors are willing to accept less liquidity in a portion of their investment-grade fixed-income portfolios, they can potentially get those 7% and 8%—and in certain instances—9% returns with significantly less risk than non-investment grade. That’s particularly compelling for institutional investors, like pension funds, which often assume +/- 7% return targets in their actuarial calculations.

There’s also a broader recognition that higher interest rates may persist. That mindset has created further tailwinds in the demand for fixed rate, investment-grade private credit—especially for those comfortable trading liquidity for yield.

Justin Plouffe:

What about on the borrower side?

Akhil Bansal:

Borrowers fall into two primary groups: financial companies such as banks and specialty finance companies seeking asset-backed finance financing and large investment grade corporates seeking bespoke financing solutions.

With respect to financial companies, ownership of the portfolios of loans and other credit instruments used to finance consumption and investment in the real economy are continuing to migrate to the private ABF markets and away from deposit taking bank balance sheets. Owners of these portfolios are often looking to enhance their returns by seeking senior, term debt financing secured by these portfolios of credit. Private ABF managers are providing this senior financing given their ability to provide fixed-rate, term-matched financing while banks prefer providing floating-rate and shorter-term financing.

In ABF, a manager can use structured finance techniques to create credit enhancement on these senior portfolio financings to create resilient, durable investment grade quality investments that are secured by diversified portfolios of high-quality, cash yielding credit instruments.

Separately, some investment-grade corporate borrowers have bespoke financing needs that can’t easily be met in the public markets. These borrowers may seek custom financing solutions that allow them to efficiently finance large capex programs. preserve ratings or achieve other strategic objectives. That’s where private capital can come in—not to take more credit risk, but to create specialized financing solutions that are more complex and merit an additional premium but ultimately have credit risk to the investment grade corporate borrower.

Justin Plouffe:

Can you share an example?

Akhil Bansal:

We recently financed land inventory for an investment-grade rated homebuilder. They needed the land to build homes but wanted the financing to be off-balance sheet to demonstrate capital discipline.

We provided a solution where we financed the ownership of the land in a separate vehicle but where the homebuilder had the obligation to acquire the land inventory as they built homes. This financing was structured so the credit risk in all cases was to the investment-grade homebuilder but through a complex structure as compared to owning the public unsecured bonds of that company. For the complexity and illiquidity, we were paid a premium compared to the homebuilder’s public debt.

Justin Plouffe:

Why would a borrower pay so much extra for that capital?

Akhil Bansal:

It’s all about achieving corporate finance objectives. In this example, our solution did not affect their credit rating nor impact debt capacity, which meant the builder could show shareholders that they remained capital light. Those benefits outweighed the higher cost of capital.

Other borrowers may worry about being downgraded. For a triple-B rated company, falling to double-B could mean losing access to commercial paper markets, increased capital costs as well as the possibility of customer loss over creditworthiness concerns. If we can take investment-grade quality assets off balance sheets and structure a financing that eliminates downgrade risk, the benefits often outweigh the higher cost of capital, particularly when compared to the alternative of raising expensive equity capital.

Justin Plouffe:

How is demand evolving on the investor side?

Akhil Bansal:

Insurers were early adopters because their capital models incentivize them to own investment-grade risk, and their insurance liabilities allow them to manage illiquidity. But we’re now seeing other types of institutional investors from pension plans to sovereign wealth funds revisiting their fixed-income liquid portfolios as they consider taking more illiquidity in that portion of their portfolios. We’re also starting to see interest from individual high-net-worth investors, many of whom have expressed interest in locking in rates and spreads at higher levels while diversifying away from leveraged corporate exposure.

Access can take many forms—institutions may want a custom solution tailored to specific needs, while others may prefer an evergreen fund structure.

Justin Plouffe:

What are some other areas of opportunity?

Akhil Bansal:

There are three that stand out:

1. Private Student Lending: The exit of most banks and the dismantling of the $1.5 trillion federal student loan program will potentially create a large opportunity for private credit to fill the void.
2. Infrastructure Credit: We’ll be seeing a lot more infrastructure spending over the next several years from AI to energy to deglobalization, and many of those projects will need customized financings that private credit players will be better suited to provide.
3. Home Finance: Financing the residential home ecosystem from land, home improvements, home equity, etc. is an asset class that lends itself to providers of senior leverage. The post-GFC persistent undersupply of housing stock relative to household formation creates a supply-demand balance favoring providing financing into this ecosystem.

 In each of these areas, investment-grade private credit has demonstrated that it can offer downside mitigation—even in periods of volatility.

Justin Plouffe is Deputy Chief Investment Officer for Global Credit and Akhil Bansal is Head of Asset-Backed Finance at Carlyle. Carlyle’s Global Credit platform manages $199 billion in assets under management, as of March 31, 2025, across the risk-return spectrum—from liquid to private credit to real asset strategies.

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