North American Pensions Stick to Private Credit Strategies
Large North American pension funds, such as the California State Teachers’ Retirement System (CalSTRS), are maintaining their exposure to private credit despite recent market headwinds, according to a report by Reuters as cited in Private Equity Wire. CalSTRS is continuing to back private credit strategies and has exposure to vehicles managed by Blue Owl Capital, remaining a significant investor in Blue Owl Capital Corp.
Key Allocations and Commitments
The Public Safety Personnel Retirement System in Arizona is targeting a 20% allocation to private credit, up from its current roughly 17%. The State Teachers Retirement System of Ohio is building out its direct lending and co-investment exposure, with private credit expected to account for around 10% of assets through its current fiscal period. Allocations remain substantial across the sector, with some US retirement systems holding mid- to high-teen percentage exposures, and in certain cases approaching 20% of total assets.
Market Challenges and Long-Term Approach
Pension funds are facing rising redemption requests, increased competition, tightening returns, and potential impacts from artificial intelligence on software borrowers, yet they are adopting a long-term approach as long-duration investors willing to ride out near-term volatility. The Healthcare of Ontario Pension Plan in Canada has expressed cautious optimism, noting mixed recent performance but seeing selective opportunities, while the Los Angeles County Employees Retirement Association emphasizes the role of credit strategies in delivering income and diversification over the longer term, even as short-term returns have softened. According to Private Equity Wire, these stances signal continued confidence in private credit despite the challenges.
Implications for the Sector
While capital inflows have intensified competition and weakened underwriting standards, funds like Arizona’s system still view private credit as having a durable role, expecting a potential market shakeout. This persistence in allocations underscores the asset class’s appeal to pension funds, as highlighted in the report.
