Private Structured Credit: Insurance's High-Yield Opportunity

In Brief: 

On the Insurance AUM podcast, MetLife Investment Management experts Poorvi Dholakia and Paul Carroll shared insights on private structured credit (also called private ABF or Asset-Based Finance), highlighting why it's becoming a critical asset class for insurance portfolios.

Why It Matters 💰

Insurance companies hold $35 trillion in invested assets globally and are increasingly allocating to private structured credit for yield enhancement of 150-200 basis points over public markets while maintaining investment-grade quality.

Big Picture Drivers 📊

• Scale advantage: Larger insurers can access these deals (typical size: $50-500M+), with MetLife able to dictate terms as lead investor

• Diversification play: Private ABF offers exposure to consumer credit, commercial credit, residential credit, and fund finance

• Regulatory developments: New capital charge models and principle-based bond definitions are reshaping the landscape

• Structural protection: Custom covenants, non-call periods and make-whole provisions provide enhanced investor safeguards

What Is Private Structured Credit? 📈

Private structured credit involves privately sourced, directly negotiated deals backed by cash-flowing collateral pools:

• Consumer credit (auto loans, credit cards, student loans)

• Commercial credit (equipment loans, data centers)

• Residential credit (mortgages)

• Fund finance (PE-related financing like NAV loans)

Unlike public ABS transactions, private deals give investors control over terms, enhanced data access, and typically larger allocations.

"With private ABS deals, we have greater control over the deal terms, and it means that we can build in and enhance investor protection." — Poorvi Dholakia

Performance Profile 🔎

Private structured credit offers compelling advantages:

• 90%+ investment grade quality in MetLife's portfolio

• Average origination spreads in high 200 bps range

• Current senior IG-rated opportunities yielding 200-300 bps

• Flexible duration profiles (2-10 years) to match various liabilities

• Lower negative convexity than traditional fixed income

2025 Outlook 🚀

The MetLife team expects:

• Spreads to move sideways rather than tightening further

• Continued growth in private market ABF solutions

• Potential impacts from Trump administration policies on tariffs, infrastructure and deregulation

• Robust pipeline across fund finance, consumer and residential credit

• Focus on strategic partnerships and loan pool purchases in less crowded sectors

"We don't expect meaningful tightening from here on, especially given what we already saw in 2024. So we think that spreads will likely move sideways." — Poorvi Dholakia

Regulatory Watch ⚖️

Key initiatives insurance investors should monitor:

• Model-based capital charges replacing rating agency reliance

• Ratings discretion allowing regulators to challenge assessments

• Principle-based bond definitions determining debt qualification

• Implementation challenges requiring significant reporting efforts

Bottom Line 💼

Private structured credit offers insurance investors a compelling way to enhance yields while maintaining high credit quality through customized deals. The asset class continues growing in 2025, with the best opportunities requiring scale and expertise to access. For insurers seeking both yield and protection in today's environment, private ABF deserves serious consideration as a strategic allocation.