Pension Funds Double Down on Private Credit

Pension funds are raising their private credit allocations even as warning signs multiply across the asset class, CNBC reported Thursday. Concerns over loose underwriting standards, opaque valuations and heavy concentration in software lending have done little to cool institutional appetite.

Inflows Hold Steady as Allocations Climb

Consulting firm Mercer told CNBC that private credit pension funds broadly remain committed, with many actively expanding positions. Institutional inflows into private credit vehicles came in near $300 billion in 2025, roughly matching the prior year’s pace. Outflows, Mercer noted, were driven mainly by retail and high-net-worth investors rather than large institutions.

Europe’s biggest pension manager, Dutch fund APG, is targeting private markets exposure above 30% of total assets. It sees current credit market volatility as a buying opportunity. The fund’s private debt slice could more than double, rising to between 2% and 4% from roughly 1.5% today. In the United Kingdom, state-backed scheme Nest has committed £450 million to U.S. private credit and wants roughly 30% of its portfolio in private markets by 2030.

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Why Pension Funds Are Structurally Built for This

Industry watchers say pension funds are natural holders of illiquid assets. Their long-dated liabilities mirror the profile of long-duration bonds. That structural match lets them capture an illiquidity premium that public markets simply do not offer.

Sebastien Betermier, executive director of the ICPM Network, a coalition of more than 50 pension funds, told CNBC that scale and long investment horizons give large institutions a distinct edge. He also pointed to tighter bank capital rules as a key driver. As regulated lenders have pulled back from certain lending markets, pension capital has stepped in to fill the gap.

Stress Is Real but Contained, Analysts Say

Not every corner of private credit is under equal strain. Hadley Ma, founder of institutional-focused firm Ferghana Investment Partners, told CNBC that current headline stress is concentrated in large-cap, sponsor-backed, covenant-light deals with heavy software exposure. That segment does not reflect the wider market.

Mercer’s Cameron Systermans echoed that view, arguing that recent redemption pressure looks more like a liquidity management issue than a signal of deep credit deterioration. Defaults remain low by historical standards, underlying leverage is stable and corporate earnings remain resilient.

Some allocators are already repositioning within the asset class, rotating toward middle-market lending and asset-backed strategies to reduce concentration risk.

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