Generali, testing private credit with Octagon

While alarm is raging in the United States around the private credit sector, Europe says it is calm because, although exposed to the sector, the Old Continent's market would have a different profile and would be more impervious to the current storm. The risk, however, some operators point out, is that the crisis that has triggered across the ocean with several operators forced to block redemptions of their funds in order to prevent investors from fleeing (including BlackRock, Apollo, Ares and Blue Owl), will enter Europe through a side entrance, i.e. through those multinationals that have interests and assets in the USA. And it is in the context of these growing fears that some observers have begun to look at various European financial institutions, and among these would be Generali. If only because at the presentation of the 2025 accounts Woody Bradford, CEO of Generali Investment, reiterated the focus on the sector: "We have entered the senior private credit market in the United States through our Octagon Credit Investors division and then launched a secondary private credit placement business here in Europe in collaboration with Partners Group". A statement that has raised the antennae of those who monitor the sector and assess its current risk profile.

In this regard, it must be said that interest in the US segment is mainly concentrated in the portfolio of Conning, the global investment management platform taken over by the Lion in 2024. The company has 190 billion in assets, of which some 33 billion are held in Octagon, a company focused on bank loans, collateralised loan obligations (Clo) and alternative credit. It is therefore through the latter that Conning is exposed to the private credit segment, understood in a broader sense.

In particular, this exposure is tracked through two funds, namely the XAI Octagon Floating Rate & Alternative Income Trust (XFLT), and the Octagon XAI CLO Income Fund (OCTIX). The former is listed on the Nyse and is a closed-end fund while the latter is a fixed-capital fund with redemption intervals. Investing in XFLT actually means investing heavily in CLOs (Collateralised Loan Obligations), which are complex instruments that package hundreds of loans to companies with low credit ratings. XFLT also invests in the equity component of CLOs. A mix that has led the fund, in the wake of depreciation, to significantly reduce its value to the point where it now stands at around USD 250 million. A pittance when you consider that Generali handles 900 billion in assets. But that is not the point. The key is to understand the level of Octagon's involvement in a perfect storm such as the one unleashing on the private credit sector in the United States, especially at a time when the Lion is pushing the accelerator on asset management. Returning to XFLT, its value has plummeted by some 48% over the past year, a drop that can be attributed mainly to its performance since the beginning of the year, as it has dropped just over 34% since the first of January. Now the shares are hovering around $3.1, but before Covid they had reached over $8. Price is not the only key indicator, however. Crucial is also the dividend that is detached. And here too the projections are downwards. If in 2021 it detached about USD 0.073 every month, then in 2023 it reached USD 0.085, a trend reversal was triggered at the end of 2024, which saw the monthly coupon first drop to USD 0.077 and then to USD 0.06 in January 2026. This value has been maintained so far, but which traders see potentially falling in the coming months. In addition, it was announced on 7 March that there will be a regrouping of shares at the rate of one for every five held, which will become effective on 23 March. This is the picture for XAI Octagon Floating Rate & Alternative Income Trust while OCTIX, which as mentioned is a redemption fund, has seen its price lose about 6% in a year. The coming months and announcements will be crucial to see if this, like others, could face potential early exit requests. This is the state of health of the two products for which the performance could be photographed.

With respect to which Generali, and the reference is to XFLT, however, pointed out that it 'outperformed peers and the market in general'. Therefore, although 'we are monitoring the situation and the performance of the fund, we do not believe that this should be seen as a wake-up call'. In addition, the Lion was keen to stress that 'exposure to private debt represents less than 3% of the group's general account' and that 'the approach is and will continue to be prudent'. Almost half of the portfolio invested in private debt, the Lion concluded, 'is made up of real estate debt and infrastructure debt, both of which have high credit ratings'.