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Alternative Credit World Ripe for Investment 

October 13, 2015

Tom Watson, BusinessWire

Alternative credit should play a more pivotal role in institutional investors’ portfolios to reduce reliance on the equity risk premium and to drive investment returns, according to a research paper by global professional services company Towers Watson. In the paper, entitled Alternative Credit: Credit for the Modern Investor, the company asserts alternative credit has been underexploited by the majority in the past, both in terms of asset allocation and implementation efficiency, and should be added to investment portfolios to improve investment efficiency and portfolio robustness.

“Investors have historically accessed alternative credit predominantly via hedge funds or small off-benchmark allocations within existing traditional fixed-income mandates,” said Dan Lomelino, Towers Watson’s head of North American credit. “In recent years, dedicated alternative credit specialists and strategies have emerged, making it more accessible. However, there is still a long way to go, as the opportunity remains underinvested and misunderstood by many institutional investors.”

Towers Watson defines alternative credit simply as all credit that is not traditional investment-grade government or corporate debt. In the liquid area, this includes high yield, bank loans, structured credit and emerging-market debt; and in the illiquid area, it comprises asset classes such as direct lending, distressed debt and specialty finance. Since 2010, Towers Watson has conducted about 300 alternative credit searches totaling almost $21 billion.

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