Report: Credit Selection critical as returns become harder to find

The investment market landscape is looking more challenging again in 2025 as a global trade war threatens the outlook with softening economic growth, rising price inflation and elevated uncertainty. Consistent returns are getting harder to find.

Institutional investors are looking broadly across credit markets – public and private, here and abroad – to find suitable exposures, at a time of increased volatility and decreased transparency in global equity markets, but credit selection is not easy.

There are numerous options across credit markets, which offer vastly different risks and returns exposures. That said, historical returns have been modest across a range of public credit market benchmarks, given periodic and sizeable drawdowns.

Within specific credit market segments, there are more nuanced choices up and down a familiar risk return curve. In this context, we can position segments like commercial real estate debt, which has historically offered consistent returns, with low volatility.

Meanwhile, we have seen a concerning lack of diversification across different asset classes, following correlated dips in equity and credit returns in 2022 and potentially again in 2025. For now, commercial real estate debt returns remain lowly correlated.

In a challenging world with elevated uncertainty, diminishing growth and volatile returns, there is a keen push to support portfolio returns and improve diversification, with private credit well positioned to deliver on both fronts.