Alternative fixed income: Trends and opportunities

Alternative fixed income: Trends and opportunities

Alternative fixed income has become increasingly important for institutional investors in recent years. It provides opportunities to increase the portfolio yield and decrease the risk – through more diversification - when the (often lower) liquidity of these assets is less of a constraint. Alternative fixed income is also well-suited for responsible investing, a major trend for investors who aim to finance a more sustainable world whilst protecting their portfolio against ESG risks.

Different needs, different strategies

In this table we compare different Aegon AM strategies within the alternative fixed income spectrum. It is important to note that the scores on the different dimensions can (and will) shift over time and that the assessment is sometimes based on qualitive instead of quantitative measures (the sustainable financing column being an example). Capital charges are determined with the standard formula of the Solvency II regulations.
Comparing different Aegon AM alternative fixed income strategies


Comparing different alternative fixed income strategies


Characteristics of a variety of alternative fixed income asset classes (for illustrative purposes only). Indicative spreads in EUR. Risk ratings in this table are either external (when available) or internal (for unrated instruments). The qualitative determination of the risk profile may take into account additional sources of protection such as guarantees. We here consider the matching properties for an investor with long-term liabilities. By sustainable financing we refer to the possibility of finding opportunities for sustainable solutions at a strategy level, as defined in the Aegon AM RI framework (see footnote 4). ESG Factors refers to the possibility of ESG integration (see also footnote 4). Sources: Bloomberg, Aegon AM, La Banque Postale Asset Management, as at December 31, 2023 or latest available.*Subject to regulatory approval


In the full paper, the different characteristics of each asset class in Table 1 are discussed in more detail.



  • Alternative fixed income has become an important part of portfolios of institutional investors in recent years. These assets give access to new markets, like direct lending to consumers via residential mortgages or via large pools of consumer debt. This diversifies traditional fixed income portfolios, with their heavy tilt toward government and corporate debt. Many alternative fixed income assets also offer an attractive illiquidity premium compared to liquid debt. Investors with long-term liabilities typically have a significant budget for illiquid investments and can thus harvest this premium with assets that fit well into their matching portfolio.

  • Alternative fixed income is also well-suited for sustainable investing. This asset class often finances projects that do not have easy access to capital markets and would otherwise receive less financing. Sustainable investing in infrastructure, for instance, is already a major trend. Opportunities in renewables, water treatment, communications, and mobility, in both developed and emerging countries are also available.

  • From a capital point of view, many alternative assets are also treated favourably. Examples are mortgages, insured private loans, export credit agency loans and other illiquid loans with a government guarantee. For asset-backed securities, capital charges have also been reduced for the Simple, Transparent and Standard subcategory.

  • Alternative fixed income strategies thus show a great variety in terms of spread, risk, capital charge, liquidity, duration matching and opportunities for responsible investing. This enables investors to choose those assets which best fit their particular investment needs, by taking the different characteristics of these assets into account.

More about the authors

Daniel Torres Investment Solutions Consultant

Daniel Torres joined Aegon Asset Management in 2019. In his role as an Investment Solutions Consultant, he helps develop market-leading and practical solutions for institutional investors across a wide range of regulatory frameworks.

David van Bragt Senior Investment Solutions Consultant

David van Bragt, PhD, is a consultant investment solutions in the fixed income, LDI and investment solutions team.

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