The first paper in this Investment Grade Private Credit series highlighted the increased focus institutional investors have recently placed on investment grade private credit and identified the spread premium to public bonds, negotiated covenants, structural flexibility, and diversification as the four core pillars of investment grade private credit’s value proposition. This second article in the series examines the premium more closely: what it is, why issuers are willing to pay it, and how much it offers historically and today.
The premium to publics, also referred to as relative value, is the additional yield a private bond pays over a public bond of comparable rating, sector, structure, and maturity. It is best measured against actual comparable public bonds at current observed pricing in spread terms, not a generic index, since indices and stale pricing can misstate the true added yield. There is no industry-standard methodology for the calculation, which is one reason published estimates vary across managers and external sources.
While the market often labels this pickup an illiquidity premium, that framing overstates the case in two ways. First, investment grade private placements are not illiquid. Demand has risen significantly in recent years, with average oversubscription levels of approximately six times in 2025.
Second, liquidity is not the only reason for the premium. Federal Reserve Bank of Chicago research identifies two distinct components: compensation for the discount investors might face in a forced sale and a complexity premium that compensates them for non-standard deal structures or borrowing terms. For that reason, some practitioners prefer the broader term complexity premium to illiquidity premium, since it better reflects the range of factors – structural, timing, and informational – that drive the pickup over public bonds.
The premium exists because issuers are willing to pay for something the public market does not offer. Historically, the primary motivation was access: many issuers were too small to bring a cost-effective deal to the immense public bond market. As the IG private market has grown, other motivations have become equally important. Some issuers value confidentiality, preferring to share financial information with a small group of lenders rather than disclose it publicly on an ongoing basis. Others are large enough for the public market but want structural flexibility, such as delayed-draw or forward-starting funding that lets them lock in pricing today for capital drawn months later, or amortization schedules tailored to a specific cash flow profile.
A growing number of issuers use both markets, choosing whichever fits their needs at a given time, valuing an established private debt capital market relationship as a standing alternative source of capital if or when public market conditions turn unfavorable.
Analysis by the Federal Reserve Bank of Chicago attributes an average premium of approximately 60 basis points (bps) to investment grade private placements relative to comparable public bonds, varying by segment: 39 bps for non-financial corporate placements and 78 bps for financial sector placements.
Our experience sits toward the upper end of these ranges. Across nearly $10 billion of investment grade private bond transactions completed over the five years to September 2026, the weighted average premium to publics was 62 bps. Year-to-date in 2026, the average is 90 basis points across a book with an average rating of A-minus and average life of ten years.
Explore the private premium in greater depth
Read the full paper to examine the factors influencing the premium in investment grade private credit, including market conditions, structured corporates, yields, and downside risk mitigation.
Footnotes
JP Morgan Securities estimates, January 2026
Principal Asset Management, internal investment data, September 2026. Five-year figures cover $9.5 billion of investment grade private investments; results reflect Principal’s own investment experience and are not market averages
Principal Asset Management, internal investment data, September 2026. Five-year figures cover $9.5 billion of investment grade private investments; results reflect Principal’s own investment experience and are not market averages
Risk considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Private placements are subject to liquidity risk, credit risk, valuation uncertainty, and issuer-specific risks. Historical spread premiums, recovery rates, covenant protections, and loss experience may not be repeated in future market environments. The strategy’s objective of downside risk reduction/protection may or may not be successful and as a result investors must be prepared to bear capital losses, including a loss of capital invested. Private credit involves an investment in non-publicly traded securities which are subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss.
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