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Untapped opportunities in EM illiquid credit

With 66% of pension funds considered cashflow negative, investors face a serious returns challenge. We believe emerging markets present a largely untapped opportunity for investors to meet their long-term goals through the use of illiquid credit allocations.

Emerging markets illiquid credit overview image

Over the last decade, many institutional investors have turned to illiquid and private credit strategies in the developed markets – initially in the US followed by Europe – as an attractive alternative to raise portfolio yields and lower volatility.

But in an economic environment where low yields put pressure on target returns, we are seeing untapped opportunities in a broader investment landscape.

Selectively increasing a portfolio’s geographic remit to include EM illiquid credit could enable long-term investors to access a compelling opportunity set that can offer a meaningful boost to returns and lower duration without increasing underlying risk.

In our view, by allocating just 5-10% of private credit portfolios to EM illiquid credit, investors have the potential to:

  • increase returns on their private credit portfolio by approximately 50bps
  • reduce overall duration and interest-rate sensitivity
  • introduce an uncorrelated asset class.

 

We dig into the investment case for broadening your geographical remit to access this compelling opportunity set in our latest deep-dive paper.

Download the PDF