FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit
Which statement best describes why insurers and pension funds are natural suppliers of capital to private credit, as opposed to a driver unrelated to their balance sheets?
Insurers and pension funds have long-dated, predictable liabilities, so they can hold illiquid assets without needing quick sales. This lets them capture an illiquidity premium from private credit, making them natural suppliers of capital to the asset class.
- ATheir long-dated liabilities allow them to hold illiquid assets and earn an illiquidity premiumCorrect
- BThey face no regulatory capital or accounting considerations on private credit holdings
- CThey need daily liquidity and so prefer assets that cannot be traded
- DThey are prohibited from holding public bonds
Explanation
Long-term, relatively stable liabilities mean these investors can tolerate illiquidity and seek the associated premium. The other options are factually wrong or reverse the logic.
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