(Bloomberg) -- For the first time, a fixed-income sector — private credit — topped the list of favored assets in Goldman Sachs Asset Management’s annual survey of global insurance companies.

Of the 359 executives polled, 53% ranked private credit among the top five asset classes in terms of expected 12-month returns. Now in its 13th year, the survey encompassed firms managing roughly $13 trillion combined, or about half of the industry’s balance-sheet assets, according to GSAM.

“One of the most surprising things about this survey was for the first time we’ve been doing the survey, we’re seeing credit or fixed-income assets at the top of the asset-class return expectations,” Matthew Armas, a managing director in GSAM’s client solutions group, said on a webinar the firm held to discuss the results. “Insurers remained aggressively allocating to private credit.” 

The $1.7 trillion private credit market is booming, and the likes of Blackstone Chief Executive Officer Steve Schwarzman say it has room to grow, even as its expansion has attracted scrutiny in recent years.

Read more: Schwarzman Bullish on Private Credit, Citing 0.3% Default Rate

Yield Peak

In other findings, the survey of chief investment officers, chief financial officers and other senior finance managers found the majority said long-term US Treasury yields had topped out and virtually all see the Federal Reserve cutting interest rates this year.

Roughly 60% expect the US central bank’s policy rate will fall to between 4.25% and 4.75% by year-end, compared with the current effective rate of 5.33%. Regarding 10-year Treasury yields, 83% see them being unchanged or lower by year-end. 

The survey was conducted from Jan. 17 through Feb. 9, when the benchmark yield averaged about 4.1%. The 10-year yielded roughly 4.3% Monday, down from an over-decade high of 5.02% reached in October.

The survey also had the largest number of clients in its history — across all regions — saying they plan to add duration risk to portfolios, setting them up to capture gains in fixed-income assets should yields decline. That outlook dovetailed with the fact that 66% see the US falling into a recession sometime in the next three years and view inflation risk as lower than in 2023.

The inclination to boost duration risk “is very consistent with investor views that interest rates have peaked,” Armas said. It also aligns with the view that the Fed will likely cut, “and that rates remain attractive and yields are attractive,” he said.

Equities Optimism

On stocks, 84% expect the S&P 500 Index to deliver a positive annual total return, up from 74% last year. Some 52%, the largest camp, anticipate returns will be greater than 5% to as high as 10%.

The US equities benchmark has gained about 10% in 2024, after setting a record high last week.

As far as risks ahead, respondents from the Americas were most concerned about deteriorating credit quality. For those in Asia, worries also centered on the potential for higher rates, a view that GSAM said likely reflected last month’s pivot by the Bank of Japan away from negative-rate policy.

For insurers in the Americas, their top asset class to hedge against inflation was floating-rate securities.

Alexandra Wilson-Elizondo, co-chief investment officer of GSAM’s multi-asset solutions group, said the companies gravitate to floating-rate debt as a hedge as it’s readily available. It also makes sense even if they anticipate rate cuts, she said.

“It comes to the psychology of what’s happened over the last few years and the fact that this is an abnormal cycle,” she said. 

“The readjustment from all of the goods inflation that we saw post-Covid and how long that period has taken leads one to be somewhat cautious in terms of how quickly you’re going to move” into a trend where inflation is falling rapidly and the Fed cuts rates deeply, she said.

Why Is Private Credit Booming? How Long Can It Last?: QuickTake

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