The move towards a core-plus mindset, first-time major allocations to stand-alone credit strategies and a focus on less liquid assets are the top trends in credit among institutional investors, according to Andrzej Skiba, managing director and head of U.S. fixed income on the BlueBay fixed income team at RBC Global Asset Management (U.S.) Inc., speaking during the Canadian Investment Review’s 2025 Global Investment Conference.
“We look at credit from a variety of ways and that really reflects a lot of what we’re hearing from institutional clients in Canada where, on one hand, credit is seen as a way to improve the efficiency of your portfolio mix. It’s a tool that helps not just total return-based investors, but also those who are liability-driven.”
Indeed, credit can play both an offensive and defensive role for pension funds, he said, noting the offensive perspective is moving away from core bonds while the defensive perspective is focused on reducing exposure to more volatile assets, such as equities.
Turning to that volatility, Skiba spoke about U.S. President Donald Trump’s global tariffs, noting his firm estimates the end state will be 10-15 per cent on most trading partners. “Our team has spent a ton of time modelling economic scenarios that would imply 15 per cent tariffs — a roughly 1.5 per cent increase in inflation. With that increase, we don’t believe the [U.S.] Federal Reserve] can cut rates unless things get really ugly in the economy. But that isn’t our base case scenario. We don’t believe the Fed will be in a position to cut rates [this year].”
If the tariffs settle around 10-15 per cent, a recession isn’t a foregone conclusion, he said, especially since he expects some clarity in policy from the U.S. administration by the summer. “That will take a lot of the uncertainty out of the market, allow businesses to make decisions [and] allow the machine to start working again.”
Returning to the universe of private credit, he highlighted the opportunities around distressed debt, infrastructure and real estate investing, but he also noted a concern with direct lending, particularly U.S. direct lending. “When you look at the leverage of the asset class, it’s very elevated.”
Forecasting a slowing growth environment where interest rates remain steady, Skiba noted that isn’t the best mix for private credit, especially in the U.S., though he added other parts of the world have lower costs for funding and a bit more flexibility.
Finally, he shared his thoughts on the attractiveness of public versus private credit markets, highlighting an improved outlook for risk-adjusted returns in public markets after the recent widening of credit spreads and move higher in yields. “It’s actually a much better risk/reward than going for some manifestations of private [markets], particularly mid-market direct lending.”
Read more coverage of the 2025 Global Investment Conference.