Rated note feeder funds have exploded in popularity, with KBRA grading $17bn of these structures last year—double the $8bn rated in 2024. These products allow life insurers to access private credit through top-rated bonds, while smaller managers gain capital without diverse track records.

Insurers use these feeders to cut capital charges on underlying investments from 30% to just 10-15%, according to NAIC data. The structure solves two problems: insurers get higher yields with less regulatory capital, while newer managers access capital from the multitrillion-dollar insurance industry.

Regulators are growing wary as leverage increases and transparency decreases. "It's the lazy CIO trade," said Anant Bhalla of 1823 Partners. With NAIC proposing new reporting requirements and rating agencies struggling to value underlying assets, market participants question whether this black-box boom can continue.