Private Investors Defend Illiquidity Premium as Demand Surges

Private credit firms are fighting to protect a feature of direct lending called the illiquidity premium to woo investors in an increasingly competitive market.

The sweetener refers to the excess return investors can make through private credit in exchange for giving up liquidity, or the ability to move in and out of investments with ease. Offering that premium is crucial, especially as spreads continue to compress.

Private credit deals typically have an illiquidity premium of 150 to 200 points, said Matthew Bass, the head of private alternatives at AllianceBernstein Holding LP, a unit that oversees $65 billion of ...