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Unlocking the illiquidity premium in EMD

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1 minutes to read by  M.Florian, P.Kurdyavko, CFA®, I.Zyskind, BlueBay Fixed Income Team May 27, 2025

We discuss how – at a time of global uncertainty – investors in emerging markets private credit can benefit from enhanced yield and a compelling risk-reward balance.

Key points

  • The illiquidity premium is the potential to harvest additional returns from investing in an illiquid vehicle. The longer-term investment horizon of a locked-up fund allows investors to access this premium.

  • In emerging markets, the drivers for capturing the illiquidity premium are an overreliance on the banking sector by borrowers, shallow local debt capital markets relative to developed markets, and a lack of alternative pools of capital.

  • Recent geopolitical events have enhanced the opportunity to capture the illiquidity premium. Investor risk appetite has diminished, further restricting EM borrowers’ access to traditional funding channels and creating an impetus to search for new funding alternatives, such as private credit.

  • Due to a lack of competition for EM illiquid assets, our strategy offers a meaningful premium over more liquid instruments with a much shorter duration, given the underlying amortising nature of the loans we invest in.
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RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), RBC Global Asset Management (Asia) Limited (RBC GAM-Asia), which are separate, but affiliated subsidiaries of RBC.

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