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Investors look to private markets for new opportunities
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The alternative credit market has blossomed as borrowers seek financing and investors seek differentiated income streams. Now, the market contains a range of asset classes that provide diversification for investors.
New pathways to alternative credit
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The energy transition continues to be an important trend for real estate debt investors, businesses and governments. However, a successful transition to a low carbon economy is dependent on many factors, each of which can drive forward our progress or create challenges.
Tracking the real estate energy transition
The traditional boundaries between public and private lending are rapidly dissolving, creating new opportunities, but also new challenges, for investors.
The changing world of credit
Alternative credit is reshaping the income landscape, offering investors new ways to balance yield potential with diversification. Discover more on Nuveen’s exclusive content portal.
Natural capital assets, including farmland and timberland, can offer investors significant portfolio benefits, while also addressing global challenges of biodiversity loss and climate change.
How investing in nature can benefit portfolios
The commercial real estate financing mechanism delivers the potential for investment-grade returns while supporting sustainability objectives, presenting compelling opportunities amid constrained credit markets.
Accelerating C-PACE: An innovative state-legislated finance structure offers investors new opportunities
The alternative credit market has seen increasing appetite for asset classes beyond U.S. direct lending indicating that investors are looking for similar income and diversification opportunities in other markets.
Diversifying alternative credit
Real estate debt is an increasingly attractive option for sophisticated investors seeking stable, risk-adjusted returns with meaningful downside protection and portfolio diversification benefits.
Real estate debt is bouncing back
The catalyst for the alternative credit market arguably came over a decade ago when the 2008 Global Financial Crisis brought about a sea change in bank lending. The advent of tighter regulations meant borrowers had to look elsewhere for financing, with more considering alternative credit as a result. This has brought about an evolution in the alternative credit market, but the 15-plus year trajectory shows this as anything but a “right place, right time” sentiment. Growth has been sustained during this time, with the AUM in global private debt strategies swelling from $232bn in 2007 to $1.9trn in 2023. Momentum has been brought to this market, allowing it to become more sophisticated with a growing number of firms innovating to gain market share in this space.
A carbon credit is a certificate representing one metric ton of carbon dioxide equivalent that is either prevented from being emitted into the atmosphere or removed from the atmosphere
With over 15 years having passed since the Global Financial Crisis, alternative credit is now functioning in a very different environment. Though this is good news in general for investors, it has also been interesting to see how alternative credit investments specifically have fared against a changing interest rate backdrop. Though still relatively higher than since the Global Financial Crisis, interest rates have returned to normal historical levels. Segments of the alternative credit market are younger than others, so and questions remain over how some will cope under changing market conditions, with some having demonstrated resilience in spite of this. Various alternative credit sectors have shown low correlation with US equities – such as real estate debt and private placements (BBB-rated corporates) that have correlations of 0.4 and 0.6, respectively.
New market, new risks
Alternative credit encompasses many asset classes but three in particular, all rapidly growing and posing attractive opportunities for investors, merit greater attention: direct lending, collateralised loan obligations (CLOs) and real estate debt. The direct lending market continues to present opportunities across senior and junior loans. This is the case in the US and major European markets where falling rate environments could provide ample opportunities. In the former, private debt investors should benefit from higher all-in yields for longer, which, although lower than during peak interest rates, are still close to historic highs. With businesses having proven they can withstand and expand in a volatile rate environment; there is the potential for highly favourable risk-adjusted returns in 2025. And in the latter, direct lending has traditionally focused on defensive sectors, meaning a lack of European economic growth shouldn’t be a significant headwind.
Alternative credit strategies in focus
CLOs boomed in 2024 despite falling loan issuance, as demand was driven by robust reset and refinancing activity. In the US, broadly syndicated CLO issuance volumes totalled $429bn in 2024, breaking the previous record of $381bn in 2021. The long-term, non-marked-to-market nature of CLOs has complemented current market dynamics. Liabilities pushed tighter last year and will likely continue trending in that direction to provide attractive financing for CLO equity in 2025. Real estate debt is now being buoyed by a recent level of certainty that commercial real estate, in the US at least, hasn’t had in recent years. Uncertainty over inflation and rate cuts has led to valuations in many real estate sectors being suppressed, but the worst seems to have passed of this environment. Having now returned to historical norms for interest rates, higher bases mean real estate debt investors should be well-placed to achieve higher returns in exchange for taking less risk. A risk-off tone will likely persist in commercial real estate debt for some time, with the onus being placed on quality from a debt perspective.
The growth of alternative credit
Global private debt AUM by strategy ($ billions)
Credit sectors can provide equity beta and reduced inflation sensitivity
15-year period ending 31 Dec 2023
There is also the changing nature of the industry. The retreat of bank debt has led to greater interest from private lenders and a growing number of firms operating in this space. Though this benefits borrowers who are presented with more choice, there is a risk of underwriting standards being compromised as lenders fight for business. These risks underline the importance of methodical investment processes and allows those firms with proven track records and strong discipline to rise above. A plethora of lenders has also enabled greater innovation and the market to blossom, with a catalogue of asset classes available to further support portfolio diversification.
Source: Bloomberg, ICE BofA, JPMorgan, S&P, Cliffwater Direct, and Gilberto Levy as of 31 Dec 2023. Data for direct lending is from 31 Mar 2023. Data for CLO BB-rated is only available from 30 Jun 2014. Representative indexes: U.S. equities: S&P 500 Index; Global equities: MSCI ACWI exUSA Index (ND); Direct lending: CDLI Total Return Index; Real estate debt: Gilberto Levy G1; Private placements – BBB-rated corporates: ICE BofA BBB U.S. Corporate Index; Senior loans:S&P LSTA Leveraged Loan Index; CLOs BB-rated debt: JPMorgan U.S. CLO Index – BB rated. Performance data shown represents past performance and does not predict or guaranteefuture results. It is not possible to invest directly in an index.
Source: Preqin as of November 2024.
115
160
232
299
350
404
426
475
543
604
683
808
927
1,061
1,194
1,417
1,713
1,827
1,926
U.S. equities
Global equities
Direct lending
1.0
Real estate debt
Inflation
Private placements - BBB-rated corporates
Senior loans
CLOs BB-rated debt
0.9
0.7
0.4
0.6
0.1
0.2
0.0
-0.1
Correlation
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Over the past five years, the annual EQuilibrium survey of global institutional investors has chronicled a period of significant change, marked by economic shifts, geopolitical uncertainty and the evolution of private markets. In 2025, institutional investors are adapting with greater agility, giving them more flexibility to pursue growth opportunities. In this new environment, we see three themes becoming increasingly apparent:
Private fixed income is gaining momentum. In 2024, investment grade public fixed income was the most popular planned allocation. However, in 2025 private fixed income was the most popular planned allocation, with 44% of global respondents planning to allocate. Investors have also shown an increasing appetite to diversify within their private allocations, such as private asset-backed securities, net asset value lending and energy infrastructure credit. This shift towards private fixed income is reflective of the continued move towards private markets more broadly. Allocations across private markets are growing, with 92% of respondents holding both private credit and private equity in portfolios. This figure has increased each year since 2021. In the 2025 survey, 66% of all respondents planned to expand their private market allocations over the next five years. This number jumped to 71% for UK-based responses. Private credit remains top of mind for investors, with respondents from the UK and US showing the most interest with 52% and 60% respectively (and UK pensions at 50%).
Embracing private markets
UK-based results show private equity and private infrastructure as other top areas of interest, with more than half (51%) of all UK respondents planning on increasing their allocations to both private equity and private infrastructure in the next two years. Allocations differ with UK pensions as 39% plan to increase allocations to private equity and 48% to private infrastructure. Infrastructure has grown increasingly popular among investors in recent years, driven in part by the asset class’s long term opportunity in the transition to a low carbon economy. The trend remains important to UK investors, with 70% of all UK survey responses saying they factor in the energy transition when making investment decisions. This number rose to 76% for UK-based pension funds. The survey results illustrate how this move into private markets is changing the structure of investment teams. Investors who have larger portions of their portfolios dedicated to alternatives are more likely to have specialised private investment decision-making groups. Those with alternative allocations below 20%, for example, are twice as likely to manage private infrastructure debt in their general fixed income team compared with investors with higher alternatives allocations. But, overall, most institutions believe their expansion into private markets is enhancing their investment knowledge and decision-making capabilities.
Environmental goals remain a priority
Respondents showed a shift in sentiment regarding the energy transition, with 61% globally agreeing that a switch to a low carbon economy is inevitable, down from 79% in 2022. However, UK investors remain more optimistic, with 75% of all UK respondents saying a transition to low carbon is certain. Again, this number was higher for UK pension funds, with 78% agreeing to the statement. This shift reflects a growing pragmatism surrounding the energy transition, underlined by the 73% of all surveyed investors who believe that meeting the growing demand for power will require both renewable and fossil fuel energy. In the UK, 69% of surveyed responses agreed brown and green energy will be needed, though this number jumped to 83% for those answering on behalf of UK pensions. A growing area of interest for institutional investors is nature-based investment strategies, though this approach remains in its infancy for many. In the UK, 55% of surveyed investors agreed that nature loss is within the top-five of economic risks, (compared to 45% globally).
“Investors have also shown an increasing appetite to diversify within their private allocations, such as private asset-backed securities, net asset value lending and energy infrastructure credit”
800 global institutional investors representing $19tn in assets were surveyed in October and November 2024. Of this total, 110 were UK institutional investors, 63 of which were from UK pension plans. Only investment decision makers were included.
For more information on Nuveen visit our website or to access deeper insights from our survey, click here.
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Geopolitical uncertainty remains Investors are shifting to private fixed income Environmental targets remain important but investment sentiment is becoming more pragmatic, particularly on the energy transition
While the threat is recognised, only 37% of all UK-based respondents say they are increasingly focused on nature-related themes in portfolios, underlining how tackling nature loss still very much in the educational phase for investors. Most institutions are prioritising clean energy and carbon reduction, either as part of net zero goals or to capture compelling risk-return opportunities. Overall, 44% of institutions have net zero commitments while another 25% plan to in the coming 12 months. Even among the roughly 30% who do not intend to set net zero commitments, the majority (64%) say they are still investing in clean energy strategies or reducing carbon in their portfolios. There is higher uptake in the UK, where 62% of respondents (67% UK pensions) have commitments in place, and a further 24% (17% UK Pensions) are planning to make commitments in the next 12 months.
Perceptions of uncertainty related to geopolitical tensions and monetary and fiscal policy have eased only slightly, while uncertainty levels surrounding capital markets and economic growth declined compared with the 2024 survey. Reflecting ongoing geopolitical concerns, institutions are:
Geopolitical concerns remain high
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Assessing the adaptability of companies and sectors to changing regulations Evaluating direct and indirect country exposures, including supply chains Adjusting sector exposures with both defensive and opportunistic strategies Reevaluating overall portfolio diversification to mitigate risk
“Most institutions are prioritising clean energy and carbon reduction, either as part of net zero goals or to capture compelling risk-return opportunities”
For more information on Nuveen visit our website or to access deeper insights from our survey, tap here.
Nuveen’s latest EQuilibrium survey shows that almost 95 per cent of institutional investors globally now hold private credit in their portfolios, marking a significant jump in the last five years (see chart). At the same time, investors are reengaging with public fixed-income markets with the recent rise in yields. “Higher interest rates, more dynamic private markets, and persistent macroeconomic and political uncertainty are resetting investor expectations,” says Anders Persson, chief investment officer and head of global fixed income at Nuveen. “Credit markets have undergone a fundamental transformation since the pandemic.”
As banks curtailed lending activity in the wake of the global financial crisis, alternative credit sources emerged offering investors diversification and yield at a time of ultra-low rates. From under $300 billion at end 2008, assets under management for private debt strategies grew to over $2 trillion by 2024, according to alternative asset data provider Preqin. But as rates have risen over the last two years, almost half of investors surveyed by Nuveen indicated plans to increase allocations to public fixed income. Investors who previously relied on private credit for yield now recognise that public markets can also generate robust income, with the added benefits of liquidity and transparency. Public credit has again become an attractive option for institutions seeking to rebuild fixed income allocations without sacrificing return potential.
Embracing public and private
Innovation in financial product design is also changing how investments are delivered to investors — from product wrappers and liquidity terms to how capital is deployed and scaled. Asset managers are working with institutional investors to design capital-efficient vehicles – such as rated note feeders, credit-protected wrappers and semi-liquid funds – that facilitate exposure to attractive credit segments while navigating regulatory changes. This includes the post-financial crisis reforms of Basel III Endgame and Solvency II that increased capital requirements and improved risk management among financial institutions. An example of such innovation is the growing use of structured finance vehicles to address institutional investors’ needs for large-scale investments that also meet capital efficiency requirements. In a recent transaction, a consortium of like-minded insurers raised more than $1 billion for Commercial Property Assessed Clean Energy (C-PACE) investments with Nuveen — a financing approach in the U.S. that supports sustainability and resiliency measures for commercial buildings. New vehicles are also being engineered for a broader institutional investor base to meet growing demand for flexibility, yield and liquidity in a unified framework. Public-to-private wrappers allow immediate deployment into liquid assets and rotation into illiquid assets over time, mitigating cash drag. Semi-liquid structures, including interval funds and non-traded BDCs (closed-end funds that provide financing to businesses), offer quarterly liquidity while accessing private credit. CLO ETFs offer a liquid vehicle to access exposure to actively managed portfolios of securitized broadly syndicated senior loans. They are proving to be attractive tools for balancing return goals and governance needs. Vehicle design is also advancing to support tax efficiency and customisation. From evergreen funds to co-investment sleeves and complex hybrids, managers are delivering tailored solutions.
Accessing the opportunities
Percent of institutions investing in private credit (%)
Different ways to access investment exposure across public and private markets
Public credit yields have reset well above long-term averages following the 2022–2023 spike in inflation and subsequent rate hikes by the U.S. Federal Reserve and central banks in Europe, the U.K. and Japan. At the end of March 2025, the yield-to-worst on the Bloomberg U.S. Aggregate Index stood at 4.6%, compared with an average of just 2.5% from 2010 to 2019 . Issuers, bankers and asset managers, meanwhile, are beginning to treat public and private credit interchangeably. Asset managers are reorganising teams to evaluate opportunities through a wider lens. This shift promotes a new mindset — one that evaluates exposures based on value and portfolio fit, not labels. Rather than viewing public and private credit as distinct alternatives, agile investors are embracing more flexible approaches that consider opportunities across both spaces. Commercial real estate exposure, for example, can be captured through publicly available CMBS – commercial mortgage-backed securities – or through private options such as direct real estate debt or specialist finance for clean energy upgrades. This broader toolkit enables investors to fine-tune their portfolios beyond conventional levers such as duration, rating or sector. “We can balance liquid and illiquid assets for steady cash flow management, blend fixed and floating rate exposures to hedge macro risks, and select from a broad range of credit structures based on relative value and execution,” Persson notes.
Source: 2025 Nuveen EQuilibrium Survey
62%
72%
87%
91%
94%
Find out more in The new architecture of institutional credit.
2021
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2025
“Rather than viewing public and private credit as distinct alternatives, agile investors are embracing more flexible approaches that consider opportunities across both spaces”
To navigate this evolving credit environment, institutions must move beyond isolated sleeve management and adopt an integrated, agile approach to credit investing. Asset managers and consultants can help, from sourcing public and private market investments to analysing the risks and return potential. Building dynamic platforms that leverage both public and private exposures based on relative value, structure and liquidity will be a key differentiator in meeting investor demand for dependable income and outperformance. “As the credit landscape continues to evolve, success will hinge on moving across public and private markets with agility,” according to Persson. The future of credit investing won’t be about choosing between public and private markets, but about combining them strategically to create portfolios capable of withstanding market cycles over the medium to long term.
Partnering for success
1. Source: Bloomberg
Source: Nuveen
• Liquid exposure to companies with EBITDA above $500M
• Liquid exposure to commercial mortgage-backed securities • Broadly diversified, predictable cash flows
• Directly owned, asset-backed exposure • Greater control and potential for appreciation, lower liquidity
• Examples include asset-backed securities and Commercial
• Exposure to companies with EBITDA of $50 - $100M • Premium spreads and covenants, lower liquidity
• Broadly diversified exposure to companies • Floating rate, active management, quarterly cash flows
BROADLY SYNDICATED LOANS
CMBS
MIDDLE MARKET DIRECT LENDING
DIRECT REAL ESTATE AND INFRASTRUCTURE DEBT
ASSET-BASED SECURITIES
CLO DEBT
EXPOSURE TO SENIOR SECURED LOANS
EXPOSURE TO ASSET-BASED LENDING
Public
Private
Hybrid
Property Assessed Clean Energy (C-PACE) upgrades
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Understanding how the major issues affecting the real estate energy transition are changing allows investors to understand the pace of change for different locations and sectors, to better position real estate portfolios. Nuveen's research explores how six influences – investor appetite, grid decarbonisation, supply chains, technology, regulation and occupier demand – are impacting the energy transition. These factors create opportunities and challenges in the journey to a low carbon economy. Here, we consider two of these factors.
Strong demand for technologies to reduce energy bills and carbon emissions will continue. The IEA forecasts that to meet net zero emissions by 2050, investments in building energy efficiency and electrification will need to increase 2.5x by 2030 when compared to 2023. This demand for reduced emissions, bolstered by building regulations to promote efficiency and improved performance, should lead to cost efficiencies. Most energy used in commercial and residential buildings goes towards space heating/cooling, heating water and air-conditioning. Technologies which can increase efficiency and electrification are therefore critical and have become more cost efficient and more effective, namely:
How technology affects the transition
Geographical fractures
Europe will likely continue leading across the spectrum of regulation. At building level, EU net zero carbon requirements are expected to tighten further, continuing to be the most stringent globally. A good example of European regulatory direction is France’s Décret tertiaire which requires buildings to reduce energy consumption 40% by 2030, 50% by 2040 and 60% by 2050, compared to a 2010 baseline. The Asia Pacific region currently has less intensive regulation; however, it is moving in a similar direction to Europe, particularly in markets where Nuveen invests. In recent years, APAC nations adopted new regulations around disclosure, climate risk management and introduced numerous sub-regional and national taxonomies. Building-level requirements were introduced in China, Japan, Korea and others. Providing leadership in the region is Singapore, through the Green Plan 2030, and the Australian states.
“The IEA forecasts that to meet net zero emissions by 2050, investments in building energy efficiency and electrification will need to increase 2.5x by 2030 when compared to 2023”
1. Source: IEA Buildings transformation review: Buildings - Energy System - IEA 2. Source: A voluntary group of states and cities launched in 2022 with a commitment to building performance policies and programs
Discover how the factors affecting the real estate’s energy transition impact portfolios in Nuveen's latest research: Tracking the real estate energy transition.
The outlook in the U.S. is complex. At a federal level it is unlikely that further regulation will be introduced. At city and state level it is more nuanced. Some states may step away from environmental, social and governance regulation while others adopt a progressive stance. Of those with a progressive stance, over 40 jurisdictions, accounting for almost 25% of U.S. building stock, have joined the National Building Performance Standards Coalition in committing to adopt building performance standards. Assessing the indicator globally, there is positivity based on a consideration of current and coming building-level regulations. However, current and future commitments might not be met as political or economic pressures increase. This may be true of both voluntary commitments and legislation focused on building performance stringency.
Reducing energy demand from existing and new buildings is crucial to the transition. Operational energy use in buildings represents about 30% of global energy consumption, according to the International Energy Agency (IEA). Improvements in building technologies and operations have delivered a 14% reduction in energy intensity of buildings since 2010, this is key as global floor area continues to increase. To meet future projections, a further 44% reduction in energy intensity is required, according to the IEA , making the case for continued innovation.
Cheaper technology advances the energy transition
Heat pumps: Supporting electrification by replacement of fossil fuel boilers while lowering energy demand (owing to the higher energy efficiency of heat pumps) LED lighting: Replacements for less efficient technologies reduce costs and help to address emissions from growing power demand Efficient HVAC: More efficient equipment – such as pumps, fans, chillers etc. – alongside building energy management systems Batteries: Supporting power demand reduction through improved balancing of (renewable) energy supplies
Typical energy end-use and potential for technology to impacts
Source: U.S. Energy Information Administration, Eurostat, Hong Kong Electrical Mechanical (EMSD)
Since the 2015 Paris Agreement, regulations supporting the low carbon transition have developed at pace with new disclosure, taxonomies, ratings and accounting standards introduced. For real estate, the key regulations are those relating to building-level performance, where focus is placed on reducing energy consumption and carbon emissions.
Regulation has progressed, but varies by region
The State of Building Performance Standards (BPS) in the U.S.
Members of the National BPS Coalition as of April 2025
Sources: Institute of Market Transformation and National BPS Coalition. Updated as of July 2024
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Alexandra Cooley, Co-founder and Chief Investment Officer at Nuveen Green Capital (NGC), leads a team that has pioneered the Commercial Property Assessed Clean Energy (C-PACE) market over the past decade. Cooley explains, “C-PACE is a U.S. state policy-enabled financing mechanism. It facilitates the investment of private capital for sustainable building upgrades on commercial buildings. This could include energy efficiency, water conservation or making buildings more resilient to protect against seismic and weather-related disasters. The programme enables long-term, cost-effective financing of commercial property improvements.” Since programmes are funded through private capital and administered at the state level, C-PACE has achieved bipartisan adoption as an economic development tool. Robust institutional investor appetite alongside favourable origination conditions underpins the $1.1 billion (£865 million) in new institutional commitments to the strategy that Nuveen Green Capital has secured year to date.
Understanding C-PACE
Find out what is driving opportunities across green capital.
1. Source: Cumulative PACE originations as reported by C-PACE Alliance as of 31 Dec 2024. 2. Source: Based on historic NGC originations as a percentage of annual PACE originations as reported by C-PACE Alliance, as of 31 Dec 2024. 3. Pensions & Investment Real Estate Managers Special Report, Oct. 2024. Ranking included 72 real estate managers and ranked them by total worldwide real estate assets as of 30 Jun 2024. Real estate assets are reported net of leverage, including contributions committed or received but not yet invested; REOCs are included with equity; REIT securities are excluded.
“The land-secured structure generates predictable cash flows, particularly attractive to insurance companies and pension schemes”
When the platform was established in 2015, four active C-PACE programmes operated across the U.S. with combined origination volumes below $250 million. Today, C-PACE programmes span nearly 40 states with origination volumes reaching billions annually, encompassing individual transactions across the spectrum from sub-$5 million to hundreds of millions . Institutional interest has expanded as market participants recognise portfolio benefits, spurring international expansion efforts to replicate this property-linked financing structure beyond U.S. markets. This development coincides favourably with current market conditions, according to Cooley. "On the property owner side, it has been driven by the shocks to the commercial real estate market and the need for alternative sources of capital," reflects Cooley. "Now C-PACE is available nearly nationwide, so the available market has grown as has education." Nuveen has expanded its capabilities significantly, deploying nearly 100 professionals across Nuveen Green Capital's 13 U.S. locations. This infrastructure supports proprietary transaction flow and diversified portfolio construction. Consequently, Nuveen Green Capital has achieved a market leading position with 50% national market share in 2024 , operating a fully integrated platform spanning origination through servicing.
Market development
The structure attaches financing directly to the property, and the mechanism facilitates capital access through property tax assessment structures. Rather than conventional bank lending, repayment occurs through special assessments incorporated into property tax obligations. This framework delivers multiple advantages for property owners and institutional investors alike. A distinguishing characteristic is the senior position of the financing relative to existing debt obligations, providing enhanced security during potential foreclosure proceedings. The land-secured structure generates predictable cash flows, particularly attractive to insurance companies and pension schemes. Cooley elaborates on the public-private partnership underpinning this versatile commercial real estate financing mechanism: "A state will pass a policy classifying sustainable building upgrades as a public benefit and allow individual property owners to create their own special taxing district on their properties. This creates a financing stream secured by the underlying property, not by the owner itself. So, it transfers if the property were to sell. It will also survive enforcement actions like a foreclosure — it essentially runs with the land until it's paid off."
“All the features of the product set – senior secured, relatively high yield, investment grade, predictable cashflows – make it capable of supporting many different investment needs”
The Nuveen partnership began in 2017, following Green Capital's (formerly Greenworks Lending) completion of the inaugural C-PACE-backed securitization— a $75 million transaction achieving investment-grade ratings and establishing institutional investor recognition. Nuveen completed the acquisition of Greenworks Lending five years later in 2021, integrating dedicated C-PACE capabilities internally, and providing Nuveen Green Capital with the resources of one of the world’s largest real estate investment managers and a mission-aligned organisation through its parent company, TIAA. The progression from that initial securitisation to current billion-dollar capital raising demonstrates the strategy's institutional maturation, according to Cooley. "We have seen support from the institutional sector on the investor side although it is a mix of investors on our platform," adds the CIO. "Whether or not they come to the conversation with us because they are looking for impact investment, or because it is just a good investment.” “All the features of the product set – senior secured, relatively high yield, investment grade, predictable cashflows – make it capable of supporting many different investment needs. And then you add the impact on top and it's the icing on the cake for many investors."
Investing involves risk; loss of principal is possible. C-PACE assets are subject to various risks, including but not limited to: risks of insufficient cash flow of the subject property due to impaired operations or value; risks of a decline in the real estate market or financial conditions of a major tenant; risks of delinquencies and defaults; failure of the subject properties to complete agreed upon construction, repairs or improvements or achieve projected energy savings; limited operating history of certain subject properties; risk of assessments underlying certain C-PACE assets failing to comply with applicable state or local laws; risks of disputes with subject property owners and mortgage lenders; environmental contamination risks affecting the subject property; lack of industry-wide prepayment information available for commercial C-PACE assessments; and changes in laws and policies impacting C-PACE programs.
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Alternative credit comprises asset classes that provide financing options outside of traditional fixed income markets. Investors were drawn to these investments following 2008, as public markets faced challenges — initially from extreme volatility during the global financial crisis and then in providing adequate income in the ensuing ultra-low interest rate environment. The alternative credit market has seen significant growth since the crisis, and the increasing appetite for asset classes beyond U.S. direct lending demonstrates investors looking for similar income opportunities in other markets.
Nuveen’s 2025 EQuilibrium survey highlighted the shift private market allocations have seen in recent years. Among the biggest takeaways from the survey of 800 institutional investors globally was increased investor appetite across private credit asset classes. In the U.K., 78% of institutional investors said they plan to maintain or increase private fixed income allocations in the next two years. Of those, 36% are targeting increases to energy infrastructure debt and private real estate debt, while 32% are looking to increase investment grade private credit (IGPC). Direct lending in the middle market remains favourable, with 32% intending to increase exposure. As they become increasingly comfortable with the risk and return profile of these markets, institutional investors, including pension funds, are seeking to spread positions across alternative credit segments to increase portfolio diversification. The survey found that 53% of U.K. pension funds plan to move into more niche opportunities of alternative credit.
Investors delve deeper into alternative credit
Figure 1: The resilience of European direct lending
Find out what is driving opportunities across alternative credit markets in our latest Alternative Credit Insights paper.
“In an environment of geopolitical and market uncertainty, alternative credit investments have offered not only an effective ballast for portfolios, but assets which often provide low or negative correlation to public market volatility”
Alternative credit is now becoming mainstream. Investors are recognising private markets as an additional source of income and diversification, while borrowers have been finding relative flexibility in pricing similar to the public market environment. The survey findings and investor actions indicate the start of a significant shift in credit allocations, one in which the gap of public and private allocations begins to close. However, diversification will remain crucial, public and private credit have important roles to play in portfolios. The sectors that make up these two markets should likely continue to provide an array of opportunities and solutions to economic risks, including the current state of uncertainty.
Same rules for shifting markets
The growth of private credit investment opportunities is not just attributed to increased sophistication; investors have sought to mitigate risks from increasing volatility in the public sector. In an environment of geopolitical and market uncertainty, alternative credit investments have offered not only an effective ballast for portfolios, but assets which often provide low or negative correlation to public market volatility. Among these asset classes are European direct lending and real estate debt, both of which are providing compelling opportunities for investors.
Market dynamics push alternatives case
European direct lending continues to offer value, delivering strong income with significantly lower volatility than public credit markets (Figure 1). Direct lending’s structural protections, floating-rate instruments and long-term capital base can provide resilience and consistency — making it an increasingly strategic allocation in a diversified portfolio.
European direct lending
Fundamentals across core segments remain strong, with sponsors actively managing risks and companies maintaining solid cash flows. When lending, relative value should be assessed by focusing on pricing discipline, covenant strength and downside risk mitigation. In today’s environment, focusing on non-cyclical sectors such as software, health care, education and business services will potentially yield an attractive illiquidity premium over comparable public credit risk.
Real estate debt continues to deliver a low-volatility diversification option to investors. The market has emerged from a challenging period and is now further along in its recovery journey. The current sentiment in the U.S. will likely create opportunities from a debt perspective, while Europe and Asia Pacific continue to undergo changes which could create long-term opportunities for investors who can identify these developments. Long-term, structural shifts continue to drive change across real estate markets, with new opportunities developing for debt investors. A growing protectionist climate in the U.S. could have implications for warehouse and other logistic-based infrastructure, with onshoring supply chains creating greater demand for new developments or refurbishment projects. In Europe, supply chain infrastructure and related sectors could benefit as the continent seeks to mitigate risks around tariff uncertainty and the threat of increased tension between China and the U.S. The residential sector remains underpinned by strong fundamentals, as the asset class continues to face a hefty supply and demand imbalance.
Investing involves risk; loss of principal is possible. Past performance is no guarantee of future returns. Nuveen, LLC provides investment solutions through its investment specialists.
EU direct lending vs. EU leveraged loans
In recent years there has been an evolution of the natural capital asset class, driven by the convergence of critical trends. Natural capital is increasingly recognised for its importance in addressing global challenges such as climate change and biodiversity loss. We have also seen increasing levels of government action, growth in environmental markets, and the maturity of assets and business models which aim to tackle these challenges. These trends provide opportunities for investors to contribute to positive impacts on nature while benefitting from diversified investment strategies and maturing environmental markets.
Natural capital assets provide critical ecosystem services which drive the global economy, providing the fundamental capital base that businesses and whole economies need to produce goods and services. PwC estimates $58 trillion of global GDP is moderately or highly dependent on nature. However, the earth’s stock of natural capital and the benefits they provide are declining. Globally we have seen a loss of species, habitats and ecosystems, with a commensurate decline of ecosystem services, such as the ability to maintain, absorb and regulate carbon in the atmosphere.
A bottom-up challenge
Find out what is driving opportunities across natural capital.
“Natural capital includes traditional financial portfolio-level benefits — diversification, attractive returns with a stable cash yield, and a hedge against inflation, as well as the sustainability benefits”
Along with the core portfolio-level benefits we believe investments in natural capital and NbS approaches can offer a range of other potential benefits for investors. These assets can offer additive and diversified sources of uncorrelated returns through exposure to emerging environmental markets and other land use opportunities (e.g. renewables), and asset-level diversification opportunities through investments in new projects or operational strategies. In addition to the financial benefits outlined, other potential benefits at asset level could include access to new markets, payments for practices through price premiums or subsides, reduced operating costs from improved efficiency, or more jobs and sustainable employment opportunities.
Benefits of investing in nature
The magnitude of this challenge means investing in the improvement, protection and restoration of natural capital is crucial. Doing so can provide a strong foundation that supports our environmental, social and economic needs – as well as provide opportunities for investors. Nature loss is increasingly seen as a critical issue. In Nuveen’s latest EQuilibrium survey of 800 institutional investors globally, 45% of respondents agreed the risk of nature loss will become a leading economic risk within the next 10 years. In the U.K., this number was even higher at 54% of U.K. pension respondents. Despite this growing recognition, only 30% of respondents globally said they intend to focus on nature-related risks in their portfolios. This difference suggests that many investors are still understanding the investible solutions and how nature-related investments can deliver financial and sustainability goals.
Natural capital is increasingly of interest to investors and their portfolios. This has traditionally included investments in timberland and farmland. Investors have come to appreciate and value the range of benefits natural capital can bring to portfolios. This includes traditional financial portfolio-level benefits — diversification, attractive returns with a stable cash yield, and a hedge against inflation, as well as the sustainability benefits. More recently, natural capital assets have also increasingly been recognised for their importance in being able to provide solutions to address climate change and biodiversity loss. Investment in certain activities, such as restoration, conservation and improved management of natural capital assets can offer ways to address these challenges. These sets of investment activities are often referred to as Nature-based Solutions (NbS). Investing in these solutions, can allow for value recognition beyond just timber and crops, providing the potential to produce quantifiable ecosystem services – for example, carbon sequestration, soil health, ecosystem restoration and water quality. This provides the potential to enhance returns and diversify revenues from natural capital assets from a range of sources. This combination of attributes is leading to growing investor interest in the asset class. This interest has also been driven by several other key trends.
Investor interest turns to nature
The recognition of the importance of natural capital and NbS has been helped by an increasing understanding and acknowledgement globally of the importance of nature. For example, the 2022 Global Biodiversity Framework established a global target for nature restoration and funding. This has been complemented by increasing levels of government action via a range of policies, subsides and financial incentives. Environmental markets have also grown in prominence, particularly as a tool to mobilise investment into addressing climate change and biodiversity loss. For example, carbon credits can be generated through changes in land management, reducing greenhouse gas emissions or sequestering CO2 from the atmosphere. To quantify these benefits there are established markets, standards and mechanisms for monitoring, reporting and independent verification. In 2024, market size totalled about $1.4 billion. By 2030, it could reach up to $35 billion as corporates move closer to their voluntary climate targets. And by 2050, the market could grow to $250 billion, according to MSCI . In addition, a range of other national and local environmental markets exist. Beyond carbon markets, there has also been the growth and maturity of other environmental markets for ecosystem services, including the mitigation bank credit market in the US and the more recent biodiversity net gain market in the UK. As economies and supply chains aim to decarbonise, there is increasing demand from companies and consumers for more environmentally friendly fibre and timber products. Companies are working with supply chains to tailor programs that incentivise changes in land management practices. Across geographies, growing markets and policy frameworks support pricing for these products, incentivising practice changes throughout supply chains. In addition, land is increasingly important for other low carbon sectors, such as renewables.
Long term trends driving investment in nature and natural capital
“Environmental markets have also grown in prominence, particularly as a tool to mobilise investment into addressing climate change and biodiversity loss”
We believe the future is bright for investments in nature capital and associated NbS activities. We have seen growing investor interest driven by increasing government and corporate action, maturing markets and scalable investment opportunities. However, while there is growing interest from investors in these strategies, they do come with complexities and risks. It is important to focus on strategies which aim to balance returns from production, including from crops, timber and land, whilst providing opportunities for exposure to revenue streams from existing and emerging environmental markets and delivering nature and climate benefits. Targeting mature and relatively stable markets remains crucial, both for production and other opportunities, including environmental markets and other low carbon sectors, such as renewables. For example, the U.S has a large and mature farmland and timberland market, complimented by local and regional environmental markets including for restoration and carbon test. Other key factors to consider include ensuring portfolio diversification, flexible operating strategies and strong monitoring and evaluation frameworks. To approach these investments with confidence, and deliver the required impacts, investors may find it beneficial to partner with an asset manager with a proven track record in natural capital investments, and the capabilities to help investors navigate these markets on a global scale. This should also be supported by having in-depth local market knowledge and teams on the ground to be able to manage and oversee assets.
Delivering these benefits
1. Source: Frozen carbon credit market may thaw as 2030 gets closer
The commercial real estate (CRE) landscape has profoundly transformed since mid-2022, creating compelling investment opportunities for institutional investors. Rising interest rates and macroeconomic uncertainty have driven capital values down by approximately 20-25% across Europe and other developed markets, according to the CBRE Prime Capital Value Index. One consequence of this is real estate debt is becoming an increasingly attractive proposition for sophisticated investors seeking stable, risk-adjusted returns with meaningful downside protection. The current environment presents a combination of factors that make real estate debt particularly compelling: attractive entry valuations, conservative lending structures, superior recovery characteristics and meaningful portfolio diversification benefits.
Private markets have demonstrated remarkable resilience and growth, expanding approximately 7.8% annually since 2012, more than double the 3.5% growth rate of public markets over the same period, according to EY. This sustained expansion reflects institutional investors' ongoing search for yield enhancement and portfolio diversification, particularly during the prolonged low-interest-rate environment that characterized the decade leading up to 2022's rate hikes. Current projections from Preqin suggest global private debt assets under management will reach $2.64 trillion by 2029, reflecting continued institutional appetite for these strategies.
Foundation for growth
The commercial real estate market correction has created what appears to be an optimal entry point for new real estate debt investments. MSCI data shows most repricing appears to have already occurred, with early signs of stabilization and even recovery emerging in some market segments. The current correction of 20-25% in European prime capital values, while significant, remains moderate compared to historical downturns such as the early 1990s recession (-36%) or the GFC (-34%). This valuation reset has coincided with significantly more conservative lending practices compared to pre-crisis standard, according to Bayes U.K. Lending Survey data. Average senior loan-to-value ratios tightened from approximately 80% before the GFC to around 55% by the end of 2024, providing lenders with substantial equity cushions.
Optimal entry point
Growth in private vs public markets
Despite the elevated inflation and interest rate environment since mid-2022, investor intentions toward real estate debt have strengthened. Recent INREV surveys indicate that 62% of investors plan to increase their allocation to real estate debt, with public and private pension funds showing the largest increases in planned allocations. This interest reflects investors' recognition of the defensive characteristics real estate debt can provide, particularly the risk mitigation physical assets offer. The appeal of backing bricks and mortar becomes particularly relevant when macroeconomic uncertainty is affecting investors. Unlike corporate credit, where recovery depends on often intangible business assets, real estate debt provides lenders with the ability to either force asset sales or take direct control of underlying properties, holding until market conditions improve.
Find out what is driving opportunities across real estate debt
“The European commercial real estate lending landscape has undergone significant structural evolution since the GFC, creating opportunities for alternative lenders and more diverse financing markets”
The European commercial real estate lending landscape has undergone significant structural evolution since the GFC, creating opportunities for alternative lenders and more diverse financing markets. Regulatory reforms including Basel III/IV and Solvency II have increased capital requirements for banks and insurers, curtailing their appetite for higher-leverage and non-core commercial real estate lending. This regulatory-driven retreat has created space for alternative lenders to establish meaningful market presence. Current estimates suggest that alternative lenders now provide approximately 40% of U.K. commercial real estate lending, with growing market shares in France, Spain and Germany. Further growth is expected as Basel III Endgame implementation continues across European markets. While banks still account for 84% of European commercial real estate lending overall, their declining market share is creating a more diverse, competitive and resilient lending ecosystem. This transition provides borrowers with a wider array of funding solutions across the capital stack while creating opportunities for institutional investors to access attractive risk-adjusted returns through direct lending strategies.
Structural evolution
Average LTV Rates vs Margins
While risk-free rates have risen since 2022, credit spreads in real estate debt have remained elevated, unlike liquid corporate credit markets where spreads have tightened. Senior real estate lending now offers yields comparable to, or even exceeding, high-yield corporate bonds, but with superior collateral backing and recovery prospects. Interest coverage ratios, which faced downward pressure during the initial phase of interest rate increases, appear to have stabilized during 2024, according to results from the Bayes U.K. Lending Survey. This stabilization, supported by recent interest rate cuts and clearer monetary policy direction, suggests that borrowers maintain adequate cash flow coverage to service their debt obligations, reducing the likelihood of defaults driven by cash flow stress.
“Real estate debt's risk-return characteristics position it well for institutional portfolios, offering returns potentially similar to higher-risk asset classes while maintaining significantly lower volatility”
The comparison between real estate debt and private corporate credit reveals stark differences. Private corporate credit, which grew rapidly to nearly $2 trillion by 2024, is now showing signs of stress as we shift away from the low-interest-rate backdrop that fuelled its expansion. Default rates in private corporate credit have increased. Fitch reports that U.S. private corporate credit default rates rose from almost 0% in 2022 to 5.7% at the start of 2025, while S&P data shows European speculative-grade corporate default rates reaching 4.1% by March 2025. These levels are typically associated with recessionary periods, and any further market shocks or extended weakness are likely to disproportionately impact corporate credit performance compared to the already-rebased real estate market.
Diverging markets
Corporate and CRE Debt Default Rates
The vulnerability of corporate credit has been significantly compounded by the growth in covenant-lite lending over the past decade. Driven by fierce competition among lenders during the capital-abundant, low-rate era, covenant-lite loans now represent approximately 90% of total leveraged loan issuance in both the U.S. and Europe, according to data from the Association for Financial Markets in Europe. In contrast, real estate debt maintains stronger structural protections. The physical nature of the underlying collateral, combined with conservative lending practices developed in response to post-global financial crisis (GFC) regulations, creates a more defensive investment proposition. Recovery rates consistently demonstrate this advantage, as data from GCD Bank shows.
Real estate debt's risk-return characteristics position it well for institutional portfolios, offering returns potentially similar to higher-risk asset classes while maintaining significantly lower volatility. This favorable risk-return profile stems from several structural factors. The senior position within the capital stack provides cushioning against defaults, while contractual income obligations built into loan structures deliver steady cash flows. The typically shorter duration of CRE loans compared to traditional fixed income investments can help mitigate exposure to inflation and interest rate changes. From a portfolio construction perspective, CRE debt's low correlation with traditional fixed income provides strong diversification benefits. Portfolio optimization analysis from Nuveen Real Estate suggests allocating just 10% of a diversified portfolio to CRE debt can potentially reduce overall portfolio volatility while maintaining or improving expected returns. This diversification advantage becomes particularly valuable during periods of market stress, when correlations between traditional asset classes often increase. The income stability provided by real estate debt also offers portfolio cash flow predictability that can be useful for institutional investors with defined liability streams, such as pension funds and insurance companies. The contractual nature of loan payments, backed by physical collateral, provides a more predictable income stream compared to equity-based real estate investments or many other alternative asset classes.
Portfolio benefits
The convergence of factors supporting real estate debt investment appears particularly compelling from a timing perspective. The regulatory environment continues to evolve in favour of alternative lenders, with Basel III likely to further constrain traditional bank lending capacity. This ongoing structural shift should continue creating opportunities to capture attractive risk-adjusted returns through private credit. The broader macroeconomic environment, while still uncertain, appears to be moving toward greater clarity regarding monetary policy direction. Central bank communications suggest that the aggressive rate hiking cycle may be behind us, potentially providing more stable operating conditions for real estate borrowers and reducing refinancing stress.
Time to return
Current market conditions present a compelling case for increased allocation to real estate debt. Attractive entry valuations following market corrections, conservative lending structures providing substantial downside protection, superior recovery characteristics compared to corporate credit and meaningful portfolio diversification benefits represent a strong real estate environment. Institutional investors have the opportunity to capitalize on these market conditions. Real estate debt offers the rare combination of defensive characteristics during uncertain times and upside potential as markets stabilize, all while providing the portfolio diversification benefits that sophisticated institutional investors increasingly value.
Seizing opportunities
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Past performance does not guarantee future results. Nuveen, LLC provides investment solutions through its investment specialists. 4908914
