Liquid credit gains momentum
04 Mar 2026
Charly Guyot, global head of Loan Solutions and head of Alternative Investors Client Line Americas, and Declan McCluskey, global hedge fund product and solutions manager at BNP Paribas’ Securities Services business, explore the growing opportunities for liquid credit and how managers can scale up with the right infrastructure and support
Image: edelweiss/stock.adobe.com
How would you define liquid credit, and what are the primary trends currently shaping the market?
It is important to define what we mean by ‘liquid credit’ as it can have slightly different definitions.
We would define it as a sub-segment of the fixed income universe, comprising debt instruments that are actively traded on secondary markets. This primarily includes investment-grade corporate bonds, high-yield bonds, and broadly syndicated loans. The defining characteristic of these assets is their liquidity; the ability for an investor to enter or exit a position relatively quickly at a transparent, market-derived price.
While distinct from the bilateral nature of direct lending, liquid credit is increasingly viewed as part of a continuous credit spectrum where participants move between public and private formats depending on specific duration and capital requirements.
The current market is defined by a significant rotation of capital. As the interest rate environment stabilises, there is a notable migration towards credit instruments that offer attractive yields. We are seeing a preference for senior secured instruments and issuers with robust balance sheets.
It is also interesting to see how these assets are being managed in practice: more diversified credit portfolios allow for the execution of large blocks of debt more efficiently, making the asset class a more flexible tool for institutional allocators who need to manage credit risk dynamically.
What is driving this growth, who is entering the liquid credit space, and what are investors looking for?
The expansion of the market is being propelled by a massive global refinancing cycle. A substantial volume of debt issued during the low-rate period of 2020-21 is approaching maturity. Now, issuers are progressively utilising the broadly syndicated loan and high-yield markets to restructure their balance sheets.
Simply put, with the increase in interest rates since 2022, credit matters again, and liquid credit offers investors a more liquid and flexible way to diversify their exposure, access capital more easily and react to market events.
Over the past decade, liquid credit has gone from a niche strategy to a core allocation in many portfolios.
A significant amount of capital has flowed to the segment, driven by the expansion of hedge fund capital, investor allocations, and an explosion in the loans market. Beyond new launches, we also see multi-strategy hedge funds and private credit firms building liquid credit sleeves.
This is mirrored by the demand for liquid credit, which is coming from a more diverse range of channels. In addition to traditional institutional investors, more wealth managers are seeking regulated, semi-liquid fund structures that offer a middle ground: the yield potential of corporate credit combined with the ability to provide periodic liquidity to investors through evergreen or open-ended structures.
What these participants are fundamentally looking for is ‘Distributed to Paid-In’ capital (DPI), actual cash flow, and the certainty of exit.
In an environment where exits in certain private markets can be more time-consuming, the ability to realise gains through liquid secondary markets has become a primary objective. There is also increased demand for operational clarity. Investors are demanding a single, verified view of their total credit exposure to manage risk effectively and ensure their fund operations remain aligned with their redemption obligations.
What are the implications for managers entering or expanding in the liquid space? From an operational, systems and people perspective, how can they ensure success?
Expanding within the liquid credit space requires a shift from episodic investment cycles to a high-velocity, data-intensive environment. To succeed, managers must manage the structural requirements of offering frequent redemption windows, while holding assets that are subject to market price fluctuations.
From a systems and investment operations perspective, the priority must be the transition to integrated, real-time processing. Managers need platforms that can handle high transaction volumes and the complex corporate actions inherent in syndicated loans and corporate bonds. This includes sophisticated liquidity modelling tools, ensuring the fund maintains an optimal cash buffer. They need an administrator who can provide a single golden source of data across the entire portfolio, which is vital for effective fund control and reporting.
From a people perspective, liquid credit managers need to develop and access teams with a ‘hybrid’ skillset, spanning both more and less liquid asset types. Teams must combine deep fundamental credit analysis with the agility to navigate rapidly moving markets. This requires a culture of continuous communication between the investment desk and trade operations, as any delay in settlement can have an immediate impact on a fund’s Net Asset Value (NAV).
The key to all this is a relationship of trust and partnership. Managers should view their servicing partner and their operational infrastructure as a strategic differentiator that can help them to capture value in an evolving landscape. When markets are moving fast, a fund administrator is vital in providing pricing that is clear, helping managers to understand changes in the NAV, reconciliations that can be trusted, and clear cash projections and reporting.
What advice would you offer to a manager selecting a servicing partner for their liquid credit strategies?
Firstly, it is important to outsource operations to a partner that can support the entire credit spectrum, from investment-grade bonds and broadly syndicated loans to bespoke direct loans. In liquid credit, the loan administrator must have a strong understanding of agent banks, settlement, amendments and voting rights while the fund administrator should produce a NAV and reporting that can be relied upon. A partner who can manage both sides of this can greatly improve managers’ operational efficiency.
In a liquid environment, data fragmentation can present a significant risk. Managers need a partner who can provide a single, verified view of all holdings to monitor total exposure and liquidity.
It is also essential to evaluate the partner’s mastery of the trade lifecycle. In the loan market, settlement cycles are traditionally protracted. This is why a servicer’s ability to automate and streamline trade operations can directly enhance the fund’s efficiency. Typical issues that managers face are around delayed loan settlement, partial assignments, pricing and valuation certainty and reconciliation breaks. An effective servicing partner can mitigate many of these risks before they occur.
Finally, managers should look at a servicing partner’s integration within the global banking ecosystem. There can be huge value in working with a provider that can offer financing, collateral management, custody and fund administration within the same institutional framework. This integrated model ensures that the operational infrastructure is as agile as the investment strategy itself.
By leveraging a partner with comprehensive institutional reach, managers can scale into new geographies and asset classes with minimal friction, ensuring that their fund operations are an enabler for growth rather than a bottleneck.
It is important to define what we mean by ‘liquid credit’ as it can have slightly different definitions.
We would define it as a sub-segment of the fixed income universe, comprising debt instruments that are actively traded on secondary markets. This primarily includes investment-grade corporate bonds, high-yield bonds, and broadly syndicated loans. The defining characteristic of these assets is their liquidity; the ability for an investor to enter or exit a position relatively quickly at a transparent, market-derived price.
While distinct from the bilateral nature of direct lending, liquid credit is increasingly viewed as part of a continuous credit spectrum where participants move between public and private formats depending on specific duration and capital requirements.
The current market is defined by a significant rotation of capital. As the interest rate environment stabilises, there is a notable migration towards credit instruments that offer attractive yields. We are seeing a preference for senior secured instruments and issuers with robust balance sheets.
It is also interesting to see how these assets are being managed in practice: more diversified credit portfolios allow for the execution of large blocks of debt more efficiently, making the asset class a more flexible tool for institutional allocators who need to manage credit risk dynamically.
What is driving this growth, who is entering the liquid credit space, and what are investors looking for?
The expansion of the market is being propelled by a massive global refinancing cycle. A substantial volume of debt issued during the low-rate period of 2020-21 is approaching maturity. Now, issuers are progressively utilising the broadly syndicated loan and high-yield markets to restructure their balance sheets.
Simply put, with the increase in interest rates since 2022, credit matters again, and liquid credit offers investors a more liquid and flexible way to diversify their exposure, access capital more easily and react to market events.
Over the past decade, liquid credit has gone from a niche strategy to a core allocation in many portfolios.
A significant amount of capital has flowed to the segment, driven by the expansion of hedge fund capital, investor allocations, and an explosion in the loans market. Beyond new launches, we also see multi-strategy hedge funds and private credit firms building liquid credit sleeves.
This is mirrored by the demand for liquid credit, which is coming from a more diverse range of channels. In addition to traditional institutional investors, more wealth managers are seeking regulated, semi-liquid fund structures that offer a middle ground: the yield potential of corporate credit combined with the ability to provide periodic liquidity to investors through evergreen or open-ended structures.
What these participants are fundamentally looking for is ‘Distributed to Paid-In’ capital (DPI), actual cash flow, and the certainty of exit.
In an environment where exits in certain private markets can be more time-consuming, the ability to realise gains through liquid secondary markets has become a primary objective. There is also increased demand for operational clarity. Investors are demanding a single, verified view of their total credit exposure to manage risk effectively and ensure their fund operations remain aligned with their redemption obligations.
What are the implications for managers entering or expanding in the liquid space? From an operational, systems and people perspective, how can they ensure success?
Expanding within the liquid credit space requires a shift from episodic investment cycles to a high-velocity, data-intensive environment. To succeed, managers must manage the structural requirements of offering frequent redemption windows, while holding assets that are subject to market price fluctuations.
From a systems and investment operations perspective, the priority must be the transition to integrated, real-time processing. Managers need platforms that can handle high transaction volumes and the complex corporate actions inherent in syndicated loans and corporate bonds. This includes sophisticated liquidity modelling tools, ensuring the fund maintains an optimal cash buffer. They need an administrator who can provide a single golden source of data across the entire portfolio, which is vital for effective fund control and reporting.
From a people perspective, liquid credit managers need to develop and access teams with a ‘hybrid’ skillset, spanning both more and less liquid asset types. Teams must combine deep fundamental credit analysis with the agility to navigate rapidly moving markets. This requires a culture of continuous communication between the investment desk and trade operations, as any delay in settlement can have an immediate impact on a fund’s Net Asset Value (NAV).
The key to all this is a relationship of trust and partnership. Managers should view their servicing partner and their operational infrastructure as a strategic differentiator that can help them to capture value in an evolving landscape. When markets are moving fast, a fund administrator is vital in providing pricing that is clear, helping managers to understand changes in the NAV, reconciliations that can be trusted, and clear cash projections and reporting.
What advice would you offer to a manager selecting a servicing partner for their liquid credit strategies?
Firstly, it is important to outsource operations to a partner that can support the entire credit spectrum, from investment-grade bonds and broadly syndicated loans to bespoke direct loans. In liquid credit, the loan administrator must have a strong understanding of agent banks, settlement, amendments and voting rights while the fund administrator should produce a NAV and reporting that can be relied upon. A partner who can manage both sides of this can greatly improve managers’ operational efficiency.
In a liquid environment, data fragmentation can present a significant risk. Managers need a partner who can provide a single, verified view of all holdings to monitor total exposure and liquidity.
It is also essential to evaluate the partner’s mastery of the trade lifecycle. In the loan market, settlement cycles are traditionally protracted. This is why a servicer’s ability to automate and streamline trade operations can directly enhance the fund’s efficiency. Typical issues that managers face are around delayed loan settlement, partial assignments, pricing and valuation certainty and reconciliation breaks. An effective servicing partner can mitigate many of these risks before they occur.
Finally, managers should look at a servicing partner’s integration within the global banking ecosystem. There can be huge value in working with a provider that can offer financing, collateral management, custody and fund administration within the same institutional framework. This integrated model ensures that the operational infrastructure is as agile as the investment strategy itself.
By leveraging a partner with comprehensive institutional reach, managers can scale into new geographies and asset classes with minimal friction, ensuring that their fund operations are an enabler for growth rather than a bottleneck.
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