Alternative credit has moved from the margins of institutional portfolio management towards the mainstream — and Toby Watson brings to this evolution a perspective grounded in nearly two decades of direct experience across structured finance, hard asset lending and global credit markets.
The growth of alternative credit reflects a structural shift in how capital is allocated across the financial system. As banks have retreated from certain lending activities following post-2008 regulatory changes, non-bank lenders have stepped in — creating credit opportunities that were not accessible to most investors a generation ago. Toby Watson, whose career spans structured credit, principal funding and global investment management across multiple market cycles, offers a considered perspective on what alternative credit involves and how it fits within modern portfolio construction.
Alternative credit encompasses a broad range of lending and credit investment strategies that sit outside the traditional universe of publicly traded bonds and bank loans. Direct lending, infrastructure debt, asset-backed finance and speciality finance are among the categories that fall under this umbrella — each with distinct risk profiles, liquidity characteristics and structural features. Toby Watson, who spent nearly 17 years at Goldman Sachs working across structured finance, hard asset lending and principal funding before joining Rampart Capital as a partner in 2020, has direct professional experience of several of these strategies at an institutional level — experience that informs a nuanced understanding of both their potential and their limitations.
A Structural Shift in the Credit Landscape
The growth of alternative credit over the past fifteen years is not simply a product of investor appetite for yield. Following the 2008 financial crisis, regulatory changes — including significantly higher capital requirements for banks — reduced the willingness of traditional lenders to extend credit across a range of activities, particularly those involving longer maturities or more complex structures. Into that space stepped a growing range of non-bank lenders, creating a significant expansion in the credit instruments available to institutional and sophisticated investors.
For Toby Watson, this structural shift is important context for understanding why alternative credit has become a more prominent part of portfolio construction conversations. It is not simply that yields in traditional fixed income have at various points been insufficient — it is that the landscape of credit itself has changed, creating categories of opportunity that, as Toby Watson sees it, require a different kind of analysis from conventional bond investing.
What Distinguishes Alternative Credit From Traditional Fixed Income?
The most important distinctions relate to liquidity, complexity and the nature of the underlying risk. Traditional bonds are publicly traded and priced continuously. Alternative credit instruments — direct loans, asset-backed facilities, infrastructure debt — are typically illiquid, privately negotiated and require more detailed credit analysis to assess properly. Toby Watson, whose career at Goldman Sachs included extensive work in structured credit and hard asset lending, developed the kind of analytical framework these instruments require — one that goes well beyond assessing a credit rating to understanding the structure, collateral and cash flow dynamics of each instrument individually.
Toby Watson on the Main Categories of Alternative Credit
The alternative credit universe is broad, and its constituent categories differ considerably in their risk profiles and return expectations. Understanding those differences is a prerequisite for thinking clearly about how alternative credit fits within a broader portfolio.
Direct Lending and Asset-Backed Finance
Direct lending — the provision of loans to companies that lack access to public bond markets — has grown substantially over the past decade. These loans are typically floating rate and senior secured, offering a combination of yield and structural seniority that appeals to many investors. Asset-backed finance — a category Toby Watson knows well from his institutional career — offers a different profile, with returns shaped by the quality of the underlying collateral and the structure of the transaction. For Toby Watson, the analytical discipline required to assess these instruments properly is one of the more demanding in the credit universe and genuinely rewards expertise.
Infrastructure Debt and Long-Duration Credit
Infrastructure debt — lending secured against energy facilities, transport networks and utilities — features long maturities, relatively predictable cash flows and collateral that is both tangible and economically essential. For Toby Watson, infrastructure debt represents one of the more distinctive categories within alternative credit, precisely because its characteristics set it apart meaningfully from most other forms of credit risk — offering a combination of asset backing and cash flow visibility that is difficult to replicate elsewhere.
Risks and Considerations in Alternative Credit
Alternative credit is not without its challenges. Among the most significant considerations for investors are:
- Illiquidity — most alternative credit instruments cannot be sold quickly at a fair price, meaning investors need confidence they can hold them through the full term
- Complexity and due diligence requirements — the diversity of structures and collateral types across the alternative credit universe demands a level of analytical depth considerably greater than for publicly traded bonds
For Toby Watson, these considerations do not diminish the potential role of alternative credit in a well-constructed portfolio — but they do underscore the importance of genuine expertise in assessing and managing these instruments.
Portfolio Construction Considerations for Alternative Credit
For investors who can accommodate the illiquidity and complexity involved, alternative credit offers characteristics that are genuinely difficult to replicate through traditional fixed income — including higher potential yields and a degree of insulation from the mark-to-market volatility of public credit markets.
Among the portfolio construction considerations most relevant when incorporating alternative credit are:
- The appropriate sizing of an alternative credit allocation relative to the overall liquidity needs of the portfolio — ensuring the illiquid component remains within bounds the investor can genuinely sustain
- The importance of diversification within the alternative credit allocation itself — across strategies, geographies and collateral types — given the idiosyncratic risks that individual instruments can carry
That, for Toby Watson, is what separates a well-considered alternative credit allocation from one that is driven primarily by the search for yield. Toby Watson — whose career at Goldman Sachs and subsequent work at Rampart Capital as a partner have given him direct experience of alternative credit across multiple market environments — would frame the central point simply: alternative credit offers genuine portfolio benefits, but realising them requires a level of analytical rigour and structural understanding that should not be underestimated. For Toby Watson, that rigour is not optional — it is the foundation on which any credible allocation to alternative credit must rest.
