Macro views

Credit convergence: A framework for public-private income solutions

May 28, 2026 - 5 min

Matthew J. Eagan, CFA

Loomis, Sayles & Company

Chris P. Gudmastad, CFA

Loomis, Sayles & Company

Alessandro Pagani, CFA

Loomis, Sayles & Company

Matt: I've been involved in the credit markets for 35 years, as a portfolio manager and as a research analyst. Over that time, nothing has changed, and everything has changed. What do I mean by that? The one constant is that credit risk is credit risk. No matter how it is packaged, whether it's a corporate bond and trading in the public market, an asset backed security, or a private security. This is why we believe there is no replacement for independent and rigorous due diligence when it comes to active credit investing.

Matt: The private market now more or less mirrors the public market in terms of the breadth of sectors and securities offered. We're even seeing a secondary market develop for certain parts of the private market, most notably on the investment grade credit side and then extending down to the non-investment grade market. All this is blurring the lines between private and public, and it's creating a lot of opportunities for investors that can straddle between these two markets.

Chris: As the lines between public and private markets continue to blur, this convergence plays into Loomis Sayles strengths, which is built on a foundation of credit discipline, research and relationships.

Chris: Because we invest across the public and private credit markets, our teams see opportunities early before they become more broadly visible. We leverage deep relationships with both issuers and intermediaries and combine this with our global credit research platform.

That combination allows us to evaluate value and risk across the full credit spectrum.

Matt: The heart of this integrated approach is a common pipeline. No matter where a deal originates from, whether it's public or private markets, it is funneled through our common pipeline.

Alessandro: the mortgage and structured finance team now has a $29 billion portfolio comprising consumer assets, real estate assets and various forms of equipment assets. Over the last 20 years, we have invested in over $100 billion of this type of assets, which allowed us to develop a deep connection with the full ecosystem of lenders and borrowers that populate the space. These assets are financed by banks, by the public structured finance market and more increasingly in the private credit markets. To us, we're somewhat indifferent to which parts of the market the assets are being financed, because we have an understanding of the full ecosystem. So we're uniquely positioned to pick the mispricing among the various different pricing sources.

Chris: We at Loomis Sayles are investors first, and one could say we're agnostic to the origination source. Our primary focus is identifying the opportunities that offer the strongest risk-adjusted returns.

Matt: The most compelling opportunities are assigned to a deal team, which consists of a group of research analysts that are selected from more than 100 of our specialized investment professionals.

Deals that make it through our due diligence process are then assessed under our unified risk premium methodology. The goal here is to quantify and unpack the risk premium into its different components, which includes market risk, specific risk, liquidity risk and complexity risk. Take, for example, the case of a high yield public bond. The first step is to examine the market risk premium that's available in the high yield market.

From here, we can take the spread of the high yield bond and compare it to other bonds that have a similar profile in terms of its rating and industry cohort. Deals that screen cheap under this methodology have the potential to build alpha in our portfolios. If that same high yield bond can be a private deal, we could take the spread and convert it into its public bond equivalent and go through the same relative value process. This process gives us a clear understanding of how much we're earning from a risk premium for every bond that we invest in.

Chris: We apply the same institutional grade research, risk and valuation methodology across all our portfolios. In an environment where private markets can feel opaque, this transparency leads to confidence and better investment decision making.

Alessandro: At Loomis Sayles, we created an integrated desk that hosts analysts and traders working side by side to address the complexity of these securities, and ultimately, they generate three important metrics, proprietary credit risk rating, proprietary liquidity score and a relative value score. So these three elements is really what allows the portfolio manager to pick the securities that best fit the portfolio.

We’re at a crossroads in fixed-income market evolution where investors need to recognize that the opportunity set has fundamentally changed.

Key takeaways

Public and private credit markets are increasingly intertwined as companies now move fluidly between public and private debt sources, using each for different strategic advantages.
Investors can benefit from a unified research framework because issuers operate across both public and private markets.
Integrated credit platforms can seek to generate repeatable alpha by flexibly selecting the optimal structure, liquidity profile, or covenant protections for the same underlying borrower.

In some ways, the economy and markets owe their continued existence to debt market dynamics more than they do to equity capitalization. Whereas equities provide the muscle for continued growth, fixed income functions like the oxygen that animates the economy, and today public and private credit are the two lungs that keep that system working, each contributing differently to how the economy absorbs and distributes capital.

Convergence is visible at the company level

As the system has matured, public and private credit now work in closer rhythm, allowing capital to circulate more efficiently across markets. That convergence is starkest at the issuer level. Many large companies now move fluidly between public and private credit markets, accessing whichever source best aligns with pricing, structure, or strategic flexibility at a given moment.

Netflix, for example, routinely issues public high yield bonds while simultaneously maintaining privately negotiated credit facilities, using each market opportunistically to balance cost of capital with liquidity and customization needs.

This behavior has become typical of capital intensive companies seeking flexibility across market conditions, tapping public markets when pricing is attractive while preserving private debt relationships for stability and tailored terms. In many of the fastest growing parts of the economy – AI data center buildouts, semiconductor capacity, critical minerals, and advanced materials – the dual public private structure has become a defining feature of corporate financing. It not only supports massive capital needs but also creates investment pathways that offer lower correlation and more nuanced relative value opportunities within broader secular themes.

The merits of a unified research framework

This ability to migrate across capital sources underscores the growing convergence of credit markets and highlights the importance of an integrated approach to sourcing and relative value assessment. In practical terms, that means treating public and private credit as one continuous opportunity set rather than siloed mandates. The research lens should be unified: The same fundamental credit work, the same forward looking view of free cash flow, industry structure, and downside cases – then expressed across instruments with different liquidity, covenants, seniority, and optionality. When those dimensions move out of alignment, integrated teams can price the trade off explicitly: Where can I get paid most – on a spread per unit of loss given default basis – for the same borrower risk?

And for investors, this dynamic creates opportunities to evaluate the same underlying credit risk across various dimensions. That opens three repeatable avenues for alpha:

Structure led relative value. When public spreads widen on technicals while private terms improve (or vice versa), investors can rotate exposure to capture better carry and downside protection without changing the issuer thesis. Think of it as choosing the best casing around the same core credit.
Liquidity premia with purpose. Liquidity isn’t binary; it’s a priced spectrum. An integrated platform can accept measured liquidity risk where underwriting conviction is high and protections are stronger, while maintaining public exposure to manage rebalancing, hedging, and cyclical turns. The goal is to earn liquidity premia deliberately, not incidentally.
Covenant and collateral arbitrage. Differences in covenants, security, and intercreditor terms often create misalignments in expected recovery. By underwriting recoveries – not just defaults – investors can position in the part of the capital stack where the compensation for actual loss severity is most attractive.

The through line is discipline: one credit view, many expressions. When markets reprice on macro shocks or fund flow volatility, that discipline allows investors to upgrade quality, improve protections, or add convexity – without abandoning issuer research. In a system where the two “lungs” increasingly work in rhythm, portfolios should breathe with both: Use public markets for transparency, liquidity, and tactical hedging; use private markets for bespoke terms, tighter alignment, and incremental spread where protections justify it. The objective isn’t reach – it’s risk-adjusted resilience across cycles.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed-income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

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This material is provided for informational purposes only and should not be construed as investment advice. References to specific securities, sectors, or industries should not be considered a recommendation. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author(s) only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside sources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.

Investing in private markets involves a high degree of risk and is not suitable for all investors. These risks include, but are not limited to: market risk, liquidity risk, capital risk, and funding risk.

Alpha is a measure of the difference between a portfolio's actual returns and its expected performance, given its level of systematic market risk. A positive alpha indicates outperformance and negative alpha indicates underperformance relative to the portfolio's level of systematic risk.

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