North American pensions stick with private credit bets despite risks

Several major North American pension systems are maintaining their exposure to private credit investments despite increasing stress within the sector.

Among them, the California State Teachers’ Retirement System continues to hold positions in private credit funds, including those managed by Blue Owl Capital Inc.

According to LSEG data, the pension giant is also the largest investor in one of Blue Owl’s publicly traded business development companies, Blue Owl Capital Corp.

Redemption Pressures Mount Across the Sector

As reported by Reuters, Blue Owl recently limited withdrawals in two of its non-traded BDCs after experiencing record redemption requests.

The move reflects a broader trend among BDC managers.

As investors grow increasingly concerned about intensifying competition, declining returns, and the potential disruptive impact of artificial intelligence on software companies financed through private credit.

Despite these developments, CalSTRS emphasised its long-term investment outlook.

Melissa Jones-Ferguson, spokesperson for the $402 billion pension system, stated via email, "While the current environment for private credit funds is being driven by investors with different goals than CalSTRS, we remain committed to our long-term investment strategy, including investing in private credit."

Jones-Ferguson declined to comment specifically on Blue Owl but underscored the institution’s broader strategic stance.

Strong allocations reflect sector appeal

Private credit, defined as loans issued by nonbank lenders such as specialised credit funds, has become increasingly attractive to public pension systems.

These funds, often tasked with meeting long-term obligations to retirees, have been drawn to the higher yields offered by such investments.

Data through the end of 2024 highlights the scale of this exposure.

Two Kentucky pension systems reportedly allocated around 20% of their assets to private credit, while several others maintained allocations in the mid-teens.

Mixed views on future growth

While commitment remains strong, some pension officials have acknowledged growing concerns about the sector’s rapid expansion.

In Arizona, the Public Safety Personnel Retirement System currently allocates approximately 17% of its assets to private credit and aims to increase that figure to 20%, as reported by Reuters.

Chief Investment Officer Mark Steed expressed continued confidence in the asset class but warned about overheating in the market.

Similarly, the State Teachers Retirement System of Ohio has maintained its commitment to private credit.

In a report published last June, the fund indicated it was focused on expanding its direct and co-investment portfolio within the asset class.

According to Reuters, as of april 2025, STRS Ohio held investments in 537 companies, with a net asset value of approximately $1.8 billion.

The system expects its allocation to private credit to remain around 10% through the fiscal year ending in September 2026.

Meanwhile, Michael Wissell, Chief Investment Officer of the Healthcare of Ontario Pension Plan, described the fund’s stance as cautiously optimistic. “It's something that we continue to be interested in, but again, it's sort of very idiosyncratic,” he said, noting variability in performance across investments.