Institutional investors have increasingly turned to alternative credit as a scalable way of diversifying beyond corporate risk while achieving higher income and returns than traditional fixed income.
Once considered a niche, the asset class has grown into a $9.6tn trillion[1] market — now larger than the Global investment grade (IG) corporate credit universe ($8.1 trillion) — and it continues to expand. New opportunities are emerging outside the corporate sphere, such as in consumer lending, emerging markets and infrastructure financing. To illustrate, Morgan Stanley Research[2] estimates that the global push toward electrification and AI infrastructure alone will require $1.5–2 trillion in fresh capital, much of which will depend on flexible, non-bank financing. Against this backdrop, alternative credit is moving from optional to essential for robust and resilient portfolios.
Equity allocations and corporate exposure can stack overlapping risks, particularly during times of volatility. In contrast, exposure to “real economy” borrowers opens the door to uncorrelated sources of return such as sovereign debt, asset-backed lending and renewable energy-backed cash flows.
As the asset class matures, it has proven its ability to address today’s challenges that traditional fixed income cannot:
The momentum is clear. UBS reports[5] that while 73% of fixed income portfolios remain allocated to government bonds, IG credit and agency/municipals, a significant 27% is now in alternative credit strategies — a share that is steadily rising. The appeal is simple: attractive yield pick-up, structural protections and diversification away from overburdened corporate balance sheet risk (Exhibit 1).
Exhibit 1: Representative Asset Owner Investment in Alternative Credit
Canada’s largest investors illustrate the strategic role Alternative Credit plays in portfolio diversification and income generation. All the below investors with assets under management (AUM) above C$100 billion.
| Fund | Alternative Credit Weight | Exposure includes |
|---|---|---|
| Fund 1 | 11% | High-yield, emerging market debt and private credit across public and private markets |
| Fund 2 | Embedded in fixed Income (31%) | Quality and high-yield bonds, syndicated loans, EM government debt, real estate and infrastructure finance |
| Fund 3 | 9% | Leveraged loans, high yield and emerging market debt |
| Fund 4 | 10% | Direct non-investment-grade credit investment solutions, in both private and public markets as well as on rescue financing and distressed debt opportunities |
These funds use Alternative Credit to enhance risk-adjusted returns and reduce their dependence on traditional fixed income.
Foundations are also active allocators, driven by the need to support stable annual spending rates. For instance:
The shift toward diversified credit assets helps these investors manage volatility, improve returns and diversify income sources.
While the largest global asset owners have the scale to build sophisticated alternative credit platforms in-house, not all investors can dedicate equivalent resources.
The key to reaping the benefits of alternative credit can often be breadth and depth in the portfolio. You must look across a growing investable universe and find the most well-rewarded areas.
WTW launched its dedicated WTW Alternative Credit Fund over a decade ago to provide low-governance access to a diversified, mature portfolio. Built on an independent multi-manager, fund-of-funds approach, it captures our highest-conviction ideas across public and private markets — including high yield, emerging market debt, securitized credit, direct lending, infrastructure and real estate debt. The portfolio is actively managed to keep pace with the changing market regime and evolving dynamics in the credit space (Exhibit 2).
Exhibit 2: Multi-manager approach. WTW Alternative Credit Fund (ACF) portfolio.
We’ve achieved robust growth in the accumulation share class over the last 10 years (Exhibit 3). For investors with high spending rates, our distributing share class launched in late 2020, has provided a stable income stream, averaging 4.7% per annum. Distributions have never fallen below 4% and are now approaching 6%, with expectations to exceed that level.
Performance[6] as of 30 June 2025 (Accumulation share class)
ACF’s innovative approach provides exposure to the most attractive pockets across multiple sectors, geographies, and lending structures, with robust underwriting standards ensuring downside protection. Together, these features can deliver a strong income distribution profile while keeping up with inflation. As asset owners adjust to the new market environment challenges, where resilience and return are both increasingly necessary, ACF can provide a timely solution to this dual mandate, providing income, compelling yields and genuine diversification to improve outcomes.
For more information, please connect with a WTW consultant to explore how alternative credit could enhance your portfolio.
In Canada, Towers Watson Canada Inc. and WTW Investment Management Canada Limited have implemented an OCIO service, WTW Delegated Investment Services (“WTW DIS”). WTW Investment Management Canada Limited is registered with the Provincial regulatory authorities, the Yukon and Northwest Territories as a portfolio manager and exempt market dealer; as a registered investment fund manager in Newfoundland and Labrador, Ontario and Quebec.
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