Two trends are creating new opportunities for alternative asset managers in real estate credit. First, there has been an increased flow of insurance capital toward real estate credit investments, with a growing share of that capital deployed via alternative asset managers. Second, concerns about the impact of AI on certain corporate borrowers, particularly software companies, have prompted some institutional investors to shift their private credit allocation from private corporate credit to private real estate credit. Together, these trends are expanding the pool of capital available for real estate lending and creating opportunities for managers positioned to originate and manage those investments.
The Growing Role of Insurance Capital
Real estate debt has been a fixture in insurance company investment portfolios for most of the nation’s history, allowing insurers to match cash flow with their long-term liabilities. Life insurance companies solidified their market share coming out of the mortgage crisis of the 1890s and were the primary source of interregional (i.e., non-local) mortgage credit in the United States until the 1950s, after which mutual savings banks and then securitized mortgages gained market share.
Insurance companies remain significant participants in the market today. Heading into 2026, life insurers held more than $770 billion in U.S. commercial real estate (CRE) debt exposure, accounting for 16% of all outstanding U.S. CRE debt. In 2025, life insurance companies grew their U.S. real estate debt holdings by more than $47 billion, outpacing both banks and agencies. Anecdotally, investment allocators at insurance companies have reported that many of their peers are discussing increasing their investments in real estate debt.
Forces Driving Insurance Demand
Several forces are reinforcing insurers’ increased allocation to real estate debt. These include favorable market dynamics, evolving insurance-sector investment needs and regulatory developments that can make certain real estate credit investments more attractive.
Market Dynamics. Since the Global Financial Crisis, commercial real estate debt has delivered relatively stable performance, with continued robust credit standards along with healthier spreads than competing investment products like corporate bonds. Real estate debt can also provide significant diversification, with low long-term correlation to other private credit strategies. In addition, there has been a vacuum created by the retreat of banks in the wake of regulatory changes during this period. Banks have increasingly focused on more senior positions in the capital stack, including back-leverage facilities secured by mortgage loans and other financing arrangements, such as repurchase transactions.
Insurance Industry Demand. Several developments in the insurance world are also prompting further allocation of insurance capital to real estate debt. The aging U.S. population has led to an increase in annuity sales, with a portion of the assets that insurers hold to match their annuity-related liabilities regularly allocated to real estate debt. Furthermore, the liquidity requirements of certain annuity products are causing investment allocators to branch out from stabilized long-term mortgages in favor of construction and core-plus bridge lending, whose shorter terms can provide a faster return of capital.
Regulatory Tailwinds. Similarly, recent regulatory dynamics in certain jurisdictions have made real estate debt increasingly attractive to insurance allocators. For example, changes to European Union Solvency II regulations coming into force in January 2027 provide insurers with more favorable treatment when investing in senior tranches of securitizations (nearly half of outstanding securitized European debt consists of mortgage-backed debt).
The Growing Role of Asset Managers
As insurance companies have increased their allocations to real estate debt, a growing share of that capital has been managed through affiliated and third-party asset management platforms. In the past, insurance companies sometimes relied on external “correspondents” to help source and diligence loans but retained a central role in the investment process. Over the past decade, however, more origination and investment management activity has shifted to asset management platforms with established origination capabilities.
This shift has coincided with an increase in strategic relationships between insurance companies and alternative asset managers. These strategic relationships generally take three forms: an insurer may invest through a separately managed account overseen by a third-party asset manager; an insurer may invest in an asset manager (often alongside an allocation of capital to that manager); or an asset manager may invest in an insurer, likewise often accompanied by an investment-management relationship. Recent examples include Mitsui Sumitomo’s investment in Barings and Tokio Marine’s investment in ACORE Capital, as well as earlier investments by Apollo in Athene and Carlyle in Fortitude Re.
One driver of these relationships is the desire of insurance companies to access more diversified portfolios that include complex, illiquid and higher-yielding investment products. But that is not always the case. In the real estate credit space, insurance companies often invest through asset managers into relatively low-leverage mortgages secured by stabilized properties. The increased convergence between insurance companies and asset managers may therefore also reflect a broader trend toward outsourcing aspects of the investment management function, allowing insurers to rely on an established manager’s origination capabilities rather than building those capabilities internally.
The Shift from Corporate to Real Estate Private Credit
Another trend supporting real estate credit activity is the reallocation of institutional capital from corporate private credit to real estate private credit. Private credit strategies have proliferated over the last decade as banks reduced their direct lending activity. Many institutional investors now have significant allocations to private credit, given its higher yields relative to public markets, flexibility around portfolio construction and often shorter fund lives than private equity.
The software industry represented a significant area of exposure for many private credit lenders, and the rapid emergence of AI has raised questions about the long-term outlook for some software borrowers. In the wake of that disruption, many investors have redirected uncommitted private credit allocation into real estate credit investments, reasoning that such loans originated by private funds and accounts are themselves a form of private credit, though one backed by tangible real estate collateral. Many investors have expressed a preference for real estate debt because of the pairing of hard asset security with the potential to own, operate and create value out of that hard asset.
Recent data reflects this growing interest. Real estate debt accounted for 19% of private credit fundraising in H1 2025, its highest level in five years, with average fund sizes reaching a record $595 million. One survey found that, among surveyed investors planning to increase allocations to private fixed income, 42% planned to increase private real estate debt allocations over the following two years. Another recent survey found that 45% of insurers planned to increase their allocations to private real estate debt, and a leading consulting firm found that 63% of investors expressed a desire to invest in real estate debt in 2025, versus 56% a year earlier.
Conclusion
These trends point to a continued capital shift to real estate debt investments from both insurance companies as well as private credit institutional investors. Alternative asset managers are well positioned to benefit from both shifts, whether by sourcing and managing real estate credit for insurers or by offering institutional investors access to asset-backed private credit strategies. For market participants, understanding the legal, regulatory and commercial forces at play will be increasingly important as capital continues to migrate toward the sector.
Private Equity Report Fall 2026, Vol 26, No 3