Rated note feeder structures continue to gain traction across private markets, as institutional investors seek more efficient ways to allocate capital while managing regulatory constraints.
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“Rated note feeder structures can improve capital treatment by allowing a portion of a private market investment to be held on Schedule D rather than Schedule BA,” Colton Lavin, principal and senior investment director in private debt at NEPC tells SCI. “As a result, we have observed some investors, particularly insurance companies, view these structures as a potential tool for expanding private market allocations while managing associated capital charges.”
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Despite the growth in issuance, NEPC cautions that rated note feeders should not be the primary driver of allocation decisions. Instead, investors should first assess the underlying private market strategy before considering whether a rated feeder structure adds incremental value.
“We believe rated note feeders should generally be viewed as a secondary consideration rather than a prerequisite,” Lavin adds.
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