Three papers published by Invesco in the third quarter of 2026 approach senior credit from different directions. The first examines the recalibration of Solvency II capital charges for securitisations (Gangwani et al., 2026). The second makes the case for broadly syndicated senior loans after a volatile first half (Petrovcik et al., 2026). The third argues that direct lending has entered a phase in which underwriting discipline, rather than market beta, determines results (Kantowitz & Thornton, 2026). Read together, they describe a single market: the same leveraged borrowers appear in syndicated loans, in the collateral pools of collateralised loan obligations (CLOs) and, increasingly, in private loan books.
The papers are marketing communications from a manager active in all three segments, and their conclusions should be read accordingly. Their data, much of it drawn from PitchBook, the S&P UBS leveraged loan indices, Morgan Stanley Research and Cliffwater, nonetheless allow a Swiss reader to test the argument against two conditions that the papers do not address: a regulatory framework that is not Solvency II, and a reference currency with short-term interest rates close to zero.
A capital reform Switzerland does not share
Securitisation has been a marginal holding for European insurers. EIOPA data cited by Invesco put it at 0.33% of investments among insurers applying the Solvency II standard formula at the end of 2021, a level the authors attribute largely to the capital charges set after the global financial crisis (Gangwani et al., 2026). Commission Delegated Regulation (EU) 2026/269, applying from 30 January 2027, changes that calibration. Senior STS (simple, transparent and standardised) securitisations move broadly into line with covered bonds: the factor for AAA senior STS falls from 1.0% to 0.7% per year of spread duration. The larger change concerns senior non-STS paper, which includes AAA CLOs because CLOs cannot qualify as STS: its AAA factor falls from 12.5% to 2.7%. Non-senior tranches retain materially higher charges, preserving the distinction between seniority levels.
Invesco’s model portfolio translates these factors into balance-sheet terms. On a €10 billion credit book weighted towards A and BBB corporates, replacing part of the corporate exposure with senior STS asset-backed securities releases about €57 million of spread capital at an unchanged spread. A blended allocation to STS paper and AAA CLOs adds 5.2 basis points of spread – roughly €5.2 million of annual income – while total spread capital remains unchanged (Gangwani et al., 2026). The figures are illustrative and exclude concentration, liquidity, currency and due-diligence costs.
None of this applies directly in Switzerland. Swiss insurers report under the Swiss Solvency Test (SST), a risk-based, market-consistent regime that the European Commission has recognised as equivalent to Solvency II but whose calibration is set in Switzerland (FINMA, n.d.). Swiss pension funds operate under BVV 2, which sets category limits rather than risk charges. The reform will therefore reach Swiss investors through prices rather than through capital. If EU insurers allocate as Invesco expects, demand for senior European securitisations will rise. That may support issuance and secondary-market liquidity, but it may also compress the spreads paid to Swiss buyers, who receive no comparable relief. An Invesco portfolio manager has argued that Swiss insurers are likely to follow their European peers regardless, since demand for CLOs is driven by the characteristics of the asset class rather than by national rules (finews.com, 2026).
Floating rates and the Swiss franc
The loan paper’s central argument is income. The average US loan coupon stood at 6.91% at the end of June 2026 and the yield to a three-year take-out at 8.93%, against 7.82% for European loans. Loans traded at around 94 in the US and 95 in Europe, below par (Petrovcik et al., 2026). Because coupons reset over SOFR or Euribor, loans carry almost no duration. The authors note that high-yield bonds outperformed loans by roughly 250 basis points in 2025, largely because falling rates rewarded duration, and regard that gain as already priced.
For a Swiss investor, the composition of the coupon matters more than its level. A floating-rate coupon consists of a base rate and a credit spread, and in Invesco’s own coupon decomposition the three-month base rate accounts for more than half of the US figure. Hedging into Swiss francs removes, approximately, the short-term interest rate differential. c-alm put that differential at 3.8% for the US dollar at the end of 2025 (IPE, 2026a). On a simple illustrative calculation, a 6.91% dollar coupon becomes something close to 3.1% in Swiss francs before credit losses, hedging frictions and fees. What remains is, in effect, the credit spread plus the Swiss franc base rate – currently zero.
Two consequences follow. First, the headline gap between US and European loan yields largely disappears once both are hedged into francs, since each is reduced to its spread over the Swiss base rate; the currency of the borrower matters less than the spread it pays. Second, the same arithmetic applies to AAA CLOs, which Invesco’s building blocks price at 130 basis points over the base rate (Gangwani et al., 2026). For a hedged pension fund, the relevant question is not whether loans or CLOs pay more than Swiss franc bonds in nominal terms, but whether a spread of this order compensates for credit risk, illiquidity and the governance cost of a specialist allocation. The analysis of microfinance published here on 28 October reached a similar conclusion for a different asset class: the cost of hedging into Swiss francs is frequently the decisive deduction.
The evidence and its limits
On fundamentals, the loan paper presents a market under pressure but not in distress. Trailing twelve-month default rates stood at 1.34% in the US and 1.47% in Europe at the end of June 2026, and fewer than 1% of loans mature in 2026. Liability management exercises now account for most default activity and have tended to produce higher recoveries than conventional payment defaults. In 2025, US loans returned 5.94% and European loans 4.00%; in both markets, interest income offset negative principal returns of more than two percentage points. In 2026 the index absorbed an AI-related sell-off in software credits and a geopolitical oil shock, and was 2.04% higher by late July (Petrovcik et al., 2026).
The limits are as instructive as the record. CLOs represent more than 70% of the investor base in syndicated loans, and 569 CLOs worth over USD 276 billion priced globally in 2025 (Petrovcik et al., 2026). That demand stabilises prices, but it also concentrates the market on one type of buyer whose appetite depends on its own funding. The Solvency II reform strengthens that chain: cheaper capital for AAA CLO buyers supports CLO formation, which supports loan demand, which in turn tightens loan spreads. Index returns are, moreover, not investable, loans settle slowly and can be illiquid in stress, and the papers’ own risk disclosures say as much. Finally, software has been a favoured sector in both syndicated and private lending, so exposure to AI-driven disruption of legacy business models can sit in several parts of a portfolio at once.
Direct lending: from beta to selection
The direct-lending paper argues that a decade of abundant liquidity allowed very different lending models to produce similar outcomes, and that this period has ended. Dispersion between fund vintages has widened since 2022, fundraising has concentrated in a few large platforms, and unitranche loans above USD 1 billion now total roughly USD 400 billion outstanding (Kantowitz & Thornton, 2026). The authors’ central concern is deployment pressure: capital raised must be invested, and the resulting drift towards higher leverage, weaker covenants or unfamiliar sectors rarely appears as a single decision.
First-quarter 2026 marks, drawn from PitchBook LCD and Morgan Stanley Research, locate the strain. Information technology carried the highest share of payment-in-kind loans priced below 90, at 8.4% by cost against a three-year average of 3.7%, with healthcare at 8.0%. Nonaccruals in healthcare reached 3.5% against an average of 1.7%, and in information technology they tripled to 2.1%. Across the market, about 5% of deals were written down by 10% or more in a single quarter (Kantowitz & Thornton, 2026). Cliffwater data show the prevalence of covenant-lite terms rising with borrower size, which supports the authors’ preference for the core middle market of companies with roughly USD 15–75 million of EBITDA – the segment in which, it should be noted, Invesco itself lends.
For Swiss pension funds, the argument translates directly into manager selection. According to PPCmetrics, those investing in private debt concentrate on corporate direct lending or more liquid bank loans, and investment-foundation vehicles offer tax and cost advantages for smaller funds (IPE, 2026b). Due diligence accordingly needs to cover the relation between fundraising and deployment, sector concentration, the share of payment-in-kind interest, covenant packages and the continuity of the team that will manage a workout.
Translating the evidence into Swiss practice
Classification. Under art. 53 para. 3 BVV 2, claims that are not listed among the traditional debt instruments are treated as alternative investments; senior loan investment groups offered by Swiss investment foundations are classified accordingly (Zürich Anlagestiftung, 2024). Private debt therefore competes with private equity, hedge funds and insurance-linked securities for the 15% alternatives limit (art. 55 BVV 2), while infrastructure has had its own category since October 2020. At 1.4% of assets in Complementa’s survey of end-2023 data, private debt still occupies a small part of that budget (Rothacher, 2024). The classification of individual securitised instruments, including CLO ETFs, should be confirmed with the investment controller and the pension fund expert.
Look-through. Syndicated loans, CLO collateral, direct lending and private equity frequently finance the same sponsor-backed companies. A fund that holds all four may carry the same software borrower several times without seeing it in asset-class reporting. Look-through analysis of underlying borrowers and sectors is therefore a precondition for sizing senior credit, as it is for the total portfolio approach discussed in these pages.
Liquidity. Complementa’s Risiko Check-up 2026 puts around 36% of Swiss pension fund assets – real estate, mortgages and alternative investments – in investments that cannot be traded immediately (Keystone-ATS, 2026). Senior credit spans that range: Invesco reports that AAA CLOs continued to trade through the 2020 dislocation and the 2022 LDI crisis and are available through daily-dealing ETFs, whereas direct-lending commitments are locked for years. The choice of format belongs in the liquidity budget, not only in the credit decision.
Market-conform return. Art. 71 BVG and art. 50–52 BVV 2 require boards to document that an investment earns a market-conform return. For senior credit, that documentation is most robust when it is made on a Swiss franc-hedged basis, after expected losses and fees, and against a stated alternative within fixed income. Swiss insurers will make the equivalent assessment within the SST rather than by reference to the EU recalibration.
References
Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge (BVG) vom 25. Juni 1982, SR 831.40. · European Commission. (2026). Commission Delegated Regulation (EU) 2026/269 amending Delegated Regulation (EU) 2015/35. As cited in Gangwani et al. (2026). · finews.com. (2026, August 17). Solvency II reform could unlock a new investment opportunity for European insurers. https://www.finews.com/news/english-news/73084-solvency-ii-reform-boosts-clo-demand-among-insurers · FINMA. (n.d.). Swiss Solvency Test (SST). Swiss Financial Market Supervisory Authority. https://www.finma.ch/en/supervision/insurers/cross-sectoral-tools/swiss-solvency-test-sst · Gangwani, N., Steidl, J., & Collins, K. (2026, September). Unlocking the next chapter of securitisation: An opportunity for European insurers [White paper]. Invesco. · IPE. (2026a). Currency hedging dilemma hits Swiss pension returns. https://www.ipe.com/news/currency-hedging-dilemma-hits-swiss-pension-returns/10135539.article · IPE. (2026b). Swiss pension funds weigh private debt as low yields persist. https://www.ipe.com/news/swiss-pension-funds-weigh-private-debt-as-low-yields-persist/10133309.article · Kantowitz, R., & Thornton, D. (2026, September). Direct lending’s next test: From capital formation to capital deployment [White paper]. Invesco. · Keystone-ATS. (2026, October 14). Casse pensioni, gli investimenti illiquidi sono in aumento [Report on Complementa, Risiko Check-up 2026]. tio.ch. https://www.tio.ch/svizzera/economia/1956672/investimenti-casse-pensioni-illiquidi-rischi · Petrovcik, K., Watts, T., & Fin, D. (2026). The case for senior loans: Q2 2026 market update [Strategy Insights, Private Credit]. Invesco. · Rothacher, A. (2024, November 7). Alternative assets for Swiss pension funds. CAIA Association. https://caia.org/blog/2024/11/07/alternative-assets-swiss-pension-funds · Verordnung über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge (BVV 2) vom 18. April 1984, SR 831.441.1. · Zürich Anlagestiftung. (2024). Prospekt Senior Loans Global (Ausgabe 08/2024). Zurich Invest AG. Note. Figures attributed to Invesco are drawn from marketing communications for professional investors and are illustrative; data sources are as stated in the original papers.