Markets Group’s Strategic Insights Series captures the investment preferences, allocation priorities, and portfolio construction perspectives of institutional and private wealth investors from across the globe. Each report synthesizes views from pension funds, endowments, family offices, and wealth managers spanning regions including North America, Europe, Asia Pacific, and the Middle East. Topics range across private markets, fixed income, real assets, macro positioning, and alternative strategies, offering a comprehensive and regionally grounded perspective on where allocator conviction is forming.
Asset Class Preferences & Investment Views
Pension Funds, Endowments, Foundations & Insurance Plans
- Why Southern California private credit programs are moving beyond direct
- credit is replacing equity-heavy hedge funds in endowment portfolios
- Why infrastructure is gaining ground as an inflation hedge over real estate
- What private equity consolidation means for managers seeking new relationships
- How existing AI exposure is changing where Orange County allocators put new capital
REGIONAL DEMAND — NEWER PROGRAMS AND A SHIFT BEYOND DIRECT LENDING
Private credit demand in Southern California includes both the buildout of new programs and changes to established allocations. The distinction matters for manager selection. Newer programs need a mix of strategies and vintages, while experienced lenders are seeking alternatives to crowded corporate loan markets.
In Los Angeles public safety capital, a program launched in June 2023 had committed slightly less than $1 billion by June 2026, with approximately half deployed. Direct lending represented about half of its strategy mix, alongside specialty finance, capital solutions, real-asset debt and distressed investments. Much of the program’s growth therefore remained tied to deployment of existing commitments. The breadth of the allocation also created a role for managers outside conventional direct lending.
Orange County’s move toward asset-based finance began around 2019 after several years of corporate lending. The reasons were specific — weaker underwriting standards, more competing lenders and products that offered little differentiation. Collateral-backed lending was intended to provide a firmer basis for recovery values as markets became more expensive. That experience supports demand for specialist underwriting, with recent problems in asset-based lending reinforcing the importance of manager selection within the strategy.
– Capital solutions, specialty finance and real-asset debt are already represented in the Los Angeles program. The manager opportunity is to provide expertise within a diversified credit allocation rather than rely on a general case for increasing private credit.
– Commitment sizes reflect risk. Higher-risk strategies receive smaller commitments within the newer program, while more conservative approaches can accommodate larger allocations. Diversification across managers and vintages remains part of the buildout.
RISK APPETITE — LOWER HURDLES TO ACCOMMODATE CONSERVATIVE FUNDS
The Los Angeles program was seeking a lower benchmark so its consultant could bring forward more conservative managers. CLO equity had been avoided because the wider portfolio already carried equity and real estate risk. These choices favor credit income that complements existing holdings and limit the appeal of funds whose higher targets require more of the same risks.
Loans originated around 2021 are receiving particular attention as higher financing costs expose leverage accepted earlier in the cycle. Review priorities include borrower cash flow, seniority and refinancing needs. Manager expansion into retail products adds questions about deployment pressure and whether institutional funds retain sufficient staff attention.
ALLOCATION CHANGE — CREDIT REPLACING EQUITY HEAVY HEDGE FUNDS
Demand for credit in Los Angeles endowment portfolios also comes from reassessing hedge funds. Within a university independent-return allocation, long-short equity and multistrategy managers had accumulated too much equity exposure during the low-rate period. Redemptions around 2020 to 2022 funded a move toward credit as higher base rates made an approximately 8% return objective more attainable.
This creates a different selection standard from a return-seeking private credit allocation. A replacement manager must improve how the diversifying portfolio behaves alongside equities. High income is useful, but less so if losses occur at the same time as the public and private equity holdings the allocation is intended to balance.
– Long-short credit has been implemented with limited leverage. The selected approach capped long exposure at 100% and typically carried approximately 20% short exposure. Its ability to use profitable shorts to fund purchases during the 2020 sell-off supported a commitment later that year.
– Roughly one-third of the university’s independent-return allocation was in drawdown structures. Much of that exposure was private credit, including special situations and bespoke lending, with a smaller portion in litigation finance, aircraft leasing and sports, media or intellectual-property investments. The specialist cash flows were viewed with greater confidence as diversifiers during market stress.
– Existing CLO exposure is under review for a different reason. BBB and lower-rated tranches offered extra yield, but potential losses alongside equities raised concern that the allocation could weaken the portfolio’s overall diversification. This was a reassessment of holdings already in place, rather than a stated decision to exit.
The resulting demand is specific — credit managers that can invest through dislocation and specialists whose cash flows are less dependent on corporate earnings. Drawdown structures have a place in that mix, subject to the endowment’s existing liquidity requirements.
ORANGE COUNTY — INFRASTRUCTURE TAKING A LARGER INFLATION ROLE
The real-asset preference emerging from Orange County is a stronger role for infrastructure alongside an established property allocation. Infrastructure grew from a single fund to approximately 5% of the portfolio. Its contractual inflation adjustments delivered more reliable protection than real estate during a period when changes in property use weakened operating income.
The property shortfall had several causes. Remote work affected offices, disrupted travel hurt hotels and online shopping reduced retail traffic. Those pressures limited the expected benefit from inflation even as prices rose elsewhere. Real estate remained in the allocation, but the experience strengthened demand for infrastructure revenues with adjustments written into contracts.
– Income-oriented infrastructure has a clear role where the objective is inflation protection.
– Energy and data-center investments already sit within the Orange County portfolio. Further commitments to these areas are being considered alongside existing AI exposure, making their shared demand drivers more relevant than their separate asset-class labels.
– Development-heavy infrastructure is being questioned where its risk and return profile resembles private equity. A strategy with little current income and substantial business or construction risk may not meet the need for dependable real-asset cash flow.
The regional allocation view from Southern California based institutions is therefore more specific than a preference for real assets generally. Contractual income has gained importance after property’s uneven inflation response, while the attractiveness of additional digital and energy exposure depends on what is already held.
LOS ANGELES COUNTY — DEEPER RELATIONSHIPS WITH FEWER MANAGERS
Secondary sales are changing how investors manage mature Southern California private equity programs. In Los Angeles County, two substantial sales reduced the number of relationships requiring oversight and allowed for deeper engagement with retained managers. The goal was to consolidate the portfolio and strengthen key partnerships, making new relationships harder to justify based on fund access alone.
The approach sits within a private equity portfolio of approximately $14 billion at a retirement system overseeing more than $90 billion. At that scale, the information and investment access provided through manager relationships have practical value. Co-investments offer a closer look at company assumptions and help determine whether reported EBITDA is translating into cash available for debt payments and reinvestment.
Private credit conditions also play a role in that assessment. Pressure on borrowers can reveal weaknesses that may not be clear from equity valuations alone, connecting credit underwriting with decisions about private equity exposure. The focus is increasingly on company financing and cash generation rather than relying only on fund-level performance.
ORANGE COUNTY — COMPLEMENTING EXPOSURE BUILT BEFORE THE AI BOOM
A challenge noted to Markets Group by an Orange County institution comes from AI-related investments already made across several strategies. Around 2019, asset-based finance addressed crowding in corporate lending, data centers provided exposure to growing data demand, energy investments reflected consumption and production trends, and venture capital was being assessed for a better entry point in the cycle. At the time, these were separate investment cases.
By 2026, AI spending connected all four areas. Conviction in these opportunities remained strong, but the focus for new capital had shifted toward investments that complement existing exposure. A new fund can increase exposure to the same AI theme through borrowers, power demand or customers, even when it sits in a different part of the portfolio.
Asset Class Preferences & Investment Views
Pension Funds, Endowments, Foundations & Insurance Plans
- Why Southern California private credit programs are moving beyond direct
- credit is replacing equity-heavy hedge funds in endowment portfolios
- Why infrastructure is gaining ground as an inflation hedge over real estate
- What private equity consolidation means for managers seeking new relationships
- How existing AI exposure is changing where Orange County allocators put new capital
REGIONAL DEMAND — NEWER PROGRAMS AND A SHIFT BEYOND DIRECT LENDING
Private credit demand in Southern California includes both the buildout of new programs and changes to established allocations. The distinction matters for manager selection. Newer programs need a mix of strategies and vintages, while experienced lenders are seeking alternatives to crowded corporate loan markets.
In Los Angeles public safety capital, a program launched in June 2023 had committed slightly less than $1 billion by June 2026, with approximately half deployed. Direct lending represented about half of its strategy mix, alongside specialty finance, capital solutions, real-asset debt and distressed investments. Much of the program’s growth therefore remained tied to deployment of existing commitments. The breadth of the allocation also created a role for managers outside conventional direct lending.
Orange County’s move toward asset-based finance began around 2019 after several years of corporate lending. The reasons were specific — weaker underwriting standards, more competing lenders and products that offered little differentiation. Collateral-backed lending was intended to provide a firmer basis for recovery values as markets became more expensive. That experience supports demand for specialist underwriting, with recent problems in asset-based lending reinforcing the importance of manager selection within the strategy.
– Capital solutions, specialty finance and real-asset debt are already represented in the Los Angeles program. The manager opportunity is to provide expertise within a diversified credit allocation rather than rely on a general case for increasing private credit.
– Commitment sizes reflect risk. Higher-risk strategies receive smaller commitments within the newer program, while more conservative approaches can accommodate larger allocations. Diversification across managers and vintages remains part of the buildout.
RISK APPETITE — LOWER HURDLES TO ACCOMMODATE CONSERVATIVE FUNDS
The Los Angeles program was seeking a lower benchmark so its consultant could bring forward more conservative managers. CLO equity had been avoided because the wider portfolio already carried equity and real estate risk. These choices favor credit income that complements existing holdings and limit the appeal of funds whose higher targets require more of the same risks.
Loans originated around 2021 are receiving particular attention as higher financing costs expose leverage accepted earlier in the cycle. Review priorities include borrower cash flow, seniority and refinancing needs. Manager expansion into retail products adds questions about deployment pressure and whether institutional funds retain sufficient staff attention.
ALLOCATION CHANGE — CREDIT REPLACING EQUITY HEAVY HEDGE FUNDS
Demand for credit in Los Angeles endowment portfolios also comes from reassessing hedge funds. Within a university independent-return allocation, long-short equity and multistrategy managers had accumulated too much equity exposure during the low-rate period. Redemptions around 2020 to 2022 funded a move toward credit as higher base rates made an approximately 8% return objective more attainable.
This creates a different selection standard from a return-seeking private credit allocation. A replacement manager must improve how the diversifying portfolio behaves alongside equities. High income is useful, but less so if losses occur at the same time as the public and private equity holdings the allocation is intended to balance.
– Long-short credit has been implemented with limited leverage. The selected approach capped long exposure at 100% and typically carried approximately 20% short exposure. Its ability to use profitable shorts to fund purchases during the 2020 sell-off supported a commitment later that year.
– Roughly one-third of the university’s independent-return allocation was in drawdown structures. Much of that exposure was private credit, including special situations and bespoke lending, with a smaller portion in litigation finance, aircraft leasing and sports, media or intellectual-property investments. The specialist cash flows were viewed with greater confidence as diversifiers during market stress.
– Existing CLO exposure is under review for a different reason. BBB and lower-rated tranches offered extra yield, but potential losses alongside equities raised concern that the allocation could weaken the portfolio’s overall diversification. This was a reassessment of holdings already in place, rather than a stated decision to exit.
The resulting demand is specific — credit managers that can invest through dislocation and specialists whose cash flows are less dependent on corporate earnings. Drawdown structures have a place in that mix, subject to the endowment’s existing liquidity requirements.
ORANGE COUNTY — INFRASTRUCTURE TAKING A LARGER INFLATION ROLE
The real-asset preference emerging from Orange County is a stronger role for infrastructure alongside an established property allocation. Infrastructure grew from a single fund to approximately 5% of the portfolio. Its contractual inflation adjustments delivered more reliable protection than real estate during a period when changes in property use weakened operating income.
The property shortfall had several causes. Remote work affected offices, disrupted travel hurt hotels and online shopping reduced retail traffic. Those pressures limited the expected benefit from inflation even as prices rose elsewhere. Real estate remained in the allocation, but the experience strengthened demand for infrastructure revenues with adjustments written into contracts.
– Income-oriented infrastructure has a clear role where the objective is inflation protection.
– Energy and data-center investments already sit within the Orange County portfolio. Further commitments to these areas are being considered alongside existing AI exposure, making their shared demand drivers more relevant than their separate asset-class labels.
– Development-heavy infrastructure is being questioned where its risk and return profile resembles private equity. A strategy with little current income and substantial business or construction risk may not meet the need for dependable real-asset cash flow.
The regional allocation view from Southern California based institutions is therefore more specific than a preference for real assets generally. Contractual income has gained importance after property’s uneven inflation response, while the attractiveness of additional digital and energy exposure depends on what is already held.
LOS ANGELES COUNTY — DEEPER RELATIONSHIPS WITH FEWER MANAGERS
Secondary sales are changing how investors manage mature Southern California private equity programs. In Los Angeles County, two substantial sales reduced the number of relationships requiring oversight and allowed for deeper engagement with retained managers. The goal was to consolidate the portfolio and strengthen key partnerships, making new relationships harder to justify based on fund access alone.
The approach sits within a private equity portfolio of approximately $14 billion at a retirement system overseeing more than $90 billion. At that scale, the information and investment access provided through manager relationships have practical value. Co-investments offer a closer look at company assumptions and help determine whether reported EBITDA is translating into cash available for debt payments and reinvestment.
Private credit conditions also play a role in that assessment. Pressure on borrowers can reveal weaknesses that may not be clear from equity valuations alone, connecting credit underwriting with decisions about private equity exposure. The focus is increasingly on company financing and cash generation rather than relying only on fund-level performance.
ORANGE COUNTY — COMPLEMENTING EXPOSURE BUILT BEFORE THE AI BOOM
A challenge noted to Markets Group by an Orange County institution comes from AI-related investments already made across several strategies. Around 2019, asset-based finance addressed crowding in corporate lending, data centers provided exposure to growing data demand, energy investments reflected consumption and production trends, and venture capital was being assessed for a better entry point in the cycle. At the time, these were separate investment cases.
By 2026, AI spending connected all four areas. Conviction in these opportunities remained strong, but the focus for new capital had shifted toward investments that complement existing exposure. A new fund can increase exposure to the same AI theme through borrowers, power demand or customers, even when it sits in a different part of the portfolio.
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