Before I went on maternity leave last year, everyone wanted a piece of private credit. The hunt for yield was on, spreads were grinding tighter, and the asset class was pitched as the answer to almost every investor's problem.
When I came back to the desk in May, one of the first things I did was ask colleagues and industry friends what I’d missed. Private credit came up again, but the tone had flipped. Highly rated funding agreement-backed notes, or FABNs, historically one of the tightest and best-held pockets of investment-grade credit, had sold off, catching many investors by surprise. This was caused by flaring concerns about the health and valuation of private assets.
FABNs offer a useful example of how private-market concerns can reach public bondholders. Typically issued through special-purpose vehicles linked to US life insurers, the bonds ultimately represent exposure to a funding agreement issued by the insurer, which works sort of like an insurance contract. The proceeds from the bond sale enter the insurer’s general account and can be invested across both public and private assets, with the insurer seeking to earn a spread over its cost of funding. Although FABNs trade in public markets and often carry high ratings, investors are ultimately exposed to the issuing insurer’s balance sheet. Their performance therefore depends on the insurer’s capital strength and on market confidence in the quality, liquidity and valuation of the assets held in its general account.
The recent sell-offs in FABNs reflected both concerns about insurers’ private-credit exposure and technical pressure in a tightly held market with limited secondary trading, showing how questions about private assets can quickly be transmitted into publicly traded securities. At the same time, the AI and technology sell-off was weighing on the hyperscaler-heavy end of the bond market. These stories may appear separate, but both show how convergence is changing where risk sits in public credit.
FABNs illustrate this convergence clearly. Although they trade in public markets and often carry high ratings, they are ultimately obligations of the issuing insurer, and therefore sensitive to the underlying assets it holds (both private and publicly traded).
Convergence: banks, insurers and asset managers
The lines between banks, insurers and private capital have been blurring for years. Post-financial crisis regulation pushed some higher-yielding, less-liquid lending away from bank balance sheets. Life insurers are natural buyers of long-dated, ‘spread’ assets that can help match long-dated liabilities and make investment gains at the same time. Private-capital managers make the deals, while insurers provide stable funding. The relationship can be mutually beneficial, but oversight of the resulting risks is still evolving, and spans several regulatory frameworks. UK life insurers, for example, are now subject to published stress testing under Solvency UK, although the exercise doesn’t yet feed directly into capital buffers in the way bank stress testing does.
The UK bulk purchase annuity space: a strong theme, reshaped
At Rathbones Asset Management, we’ve long found attractive opportunities in UK insurance bonds. The growth of the pension risk transfer (PRT) market, including bulk purchase annuity (BPA) transactions that de-risk defined benefit schemes, has provided a number of successful investments for our clients. It’s a structurally growing market, but its ownership and partnership landscape has changed quickly. Private-capital firms are increasingly acquiring or partnering with insurers active in pension risk transfer, combining regulated insurance platforms and long-dated liabilities with additional capital and private-market origination capabilities. Athora, which has a strategic asset-origination relationship with Apollo, completed its acquisition of rival Pension Insurance Corporation in March, while Brookfield finalised its purchase of Just Group days later. And JAB Insurance will soon complete the purchase of Utmost Group’s life and pensions business.
Partnerships between private asset managers and insurers are reshaping the market too. L&G has partnered with Blackstone, while Standard Life has announced a new PRT venture with a consortium led by CVC Capital Partners and Prudential Financial’s asset management businesses. Backed by up to £2 billion of initial capital, it will combine Standard Life's regulated platform and operational control with additional capital and private-market deal flow.
The logic is clear. Insurers gain specialist origination capabilities and, in some cases, additional capital for growth. Private-capital managers gain access to a stable, long-duration pool of insurance capital that gives them the latitude to make more lucrative, less liquid investments. The model can be powerful, but the quality, structure and valuation of the resulting assets still matter.
An analysis by S&P Global Ratings, reported by the FT in July, highlighted the proportion of less-liquid, harder-to-value private assets held by some UK pension insurers. S&P estimated that assets in the most-opaque valuation category represented more than 10% of portfolios at L&G, Standard Life and Just Group, and found that UK pension insurers had greater exposure to private credit than Continental European peers. These ‘Level 3’ assets were used as a broad proxy, although it’s an imperfect measure: not every Level 3 asset is private credit, while some private-credit holdings may fall into other valuation categories. Importantly, S&P’s stress test of a hypothetical UK life insurer with around 12% private-credit exposure found that it retained sufficient capital under a shock comparable with the global financial crisis. The findings deserve attention, but shouldn’t become a blanket conclusion about the sector.
AI, supply and new funding channels
AI infrastructure can access both public and private funding, while insurers connect private-credit assets with publicly issued debt. Source: Rathbones, Visual created with Microsoft Copilot.
The weight of hyperscaler capital expenditure and the bond supply to finance it have changed the public credit market as well. The scale of issuance has increased spreads in parts of the investment-grade technology sector for both existing bonds and new issues that are having to come to market with concessions as investors assess both the bonds already issued and the funding still to come. Our team has minimal exposure to hyperscalers, and hasn’t participated in the recent flurry of issuance.
Private-capital managers can provide large, bespoke financing quickly through project, asset-backed or special-purpose structures outside an issuer’s traditional unsecured bond programme. In June 2024, chipmaker Intel raised $11.2bn by selling Apollo-managed funds a 49% interest in a joint venture linked to its Fab 34 semiconductor facility in Ireland, while retaining control. Intel agreed to repurchase the interest for $14.2bn in April 2026.
This isn’t simply competition for the bulge-bracket banks. It’s changing how large companies fund capital-intensive projects and how risk travels between public markets, private funds and insurance balance sheets.
Then there is the more opaque plumbing. Banks and asset managers are starting to package interests in private-credit funds into rated bonds, with insurance guarantees helping senior tranches achieve investment-grade ratings. In effect, illiquid fund exposures are wrapped, tranched, insured and rated before the senior securities are placed with insurers or pension funds. The wrapper does not make the underlying risk disappear. It changes who bears it and can make the chain of exposure harder to follow.
The future path
As private credit moves closer to public markets, its supporting infrastructure will need to evolve too. More frequent and transparent valuation is being developed across large credit portfolios, dedicated secondary desks are building two-way markets, and industry initiatives are working towards common identifiers and standardised data. Call it the ‘publicification’ of private credit: better marks, more secondary liquidity and clearer information. Done well, this should reduce uncertainty, improve price discovery and help investors assess private and public credit on a more consistent basis.
What this means for us as investors
Convergence is changing how capital is raised, where assets are held, and how risk moves through the financial system. For credit investors, that makes selectivity and detailed analysis more important than ever.
Headline ratings and capital ratios remain important, but they do not tell the whole story. We need to consider the underlying assets, how financing has been originated and structured, where liquidity and concentration risks lie, and how those risks might behave under stress. A long-dated investment-grade private placement is fundamentally different from highly levered lending or a structured exposure backed by fund interests.
When I left for maternity leave, private credit was the market's favourite source of additional yield. When I returned, it had become one of the risks investors most wanted to discuss. The truth sits somewhere between those positions. Private credit can offer borrowers flexibility and investors attractive, long-dated assets. But the label alone tells us very little about the underlying risk.
As the lines between banks, insurers, asset managers and public and private markets continue to blur, our job is to look through the structure and understand where the risk ultimately sits.
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