Pension Funds Double Down on Private Credit

Pension funds are expanding their private credit allocations even as structural vulnerabilities in the asset class attract growing scrutiny, CNBC reported Thursday.

Consulting firm Mercer said institutional investors broadly remain committed to private credit. Net new institutional inflows into private credit vehicles reached nearly $300 billion in 2025, roughly matching the prior year’s pace. Outflows, by contrast, have come primarily from retail and high-net-worth channels.

Large Funds Accelerate Private Credit Exposure

Europe’s biggest pension manager, Dutch fund APG, is pushing its total private markets exposure above 30% of assets. The fund views current credit market volatility as a buying window. Its private debt allocation could nearly triple, moving from around 1.5% to as high as 4%.

In the United Kingdom, state-backed scheme Nest has committed £450 million to U.S. private credit. It is targeting a broader private markets allocation of roughly 30% by 2030, well above the sector average. In North America, the California State Teachers’ Retirement System is maintaining private credit holdings that include exposure to funds managed by Blue Owl Capital, some of which have placed caps on investor redemptions.

Why Pension Funds Are Structurally Suited for Illiquid Assets

Sebastien Betermier, executive director of the ICPM Network, a consortium of more than 50 pension funds globally, told CNBC that private credit offers attractive risk-adjusted returns for long-horizon investors. He noted that tightening bank capital rules have pushed commercial lenders to reduce their own exposure, opening the market further for institutional players.

Pension funds carry long-duration liabilities that naturally align with illiquid asset holdings. That structure lets them capture an illiquidity premium unavailable in public fixed income markets. Typical private credit allocations remain in the low-to-mid single digits as a share of total portfolio assets, according to Mercer.

Stress Is Concentrated, Not Systemic

Cameron Systermans, head of multi-asset at Mercer Asia, said current redemption pressure reflects a liquidity issue rather than a fundamental credit problem. He pointed to low default rates, stable leverage, and solid corporate earnings as reassuring signs.

Hadley Ma, founder of institutional-focused private credit firm Ferghana Investment Partners, told CNBC that headline stress is concentrated in large-cap, covenant-light, software-heavy lending. Allocators are already responding by rotating toward middle-market loans and asset-backed strategies, where underwriting discipline has remained stronger.

The divergence suggests pension funds are becoming more selective within private credit rather than retreating from it altogether.

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