By Ross Kerber and Isla Binnie
April 9 (Reuters) – Several big North American pension systems are standing by their private credit holdings even as the sector faces choppy waters, a sign of both the industry’s potential resilience and its long reach into workers’ retirement plans.
For instance, the California State Teachers’ Retirement System, or CalSTRS, has holdings in private credit funds including some run by Blue Owl Capital Inc, and it is the biggest investor in one of that firm’s publicly traded business development companies (BDCs), Blue Owl Capital Corp, according to LSEG data.
Blue Owl limited withdrawals in two of the non-traded versions of its BDCs last week after investors put in record redemption requests.
The firm is the latest in a string of BDC managers facing redemption stresses as investors fret about competition, falling returns and the risk of artificial intelligence upending software businesses financed by private credit.
A spokesperson for the $402 billion California system declined to comment on Blue Owl but said that it takes a long-term view of investing.
“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,” said the spokesperson, Melissa Jones-Ferguson, via email.
Reuters is first to report such commitments from CalSTRS and other pension funds to the private credit industry after its troubles began late last year.
“Private credit” refers to loans made by nonbank lenders such as specialized credit funds at higher interest rates. Investing in them has proven catnip to public-sector funds, set up for long-term operations and often looking to catch up on what they owe retirees.
Data through the end of 2024 showed two Kentucky systems with around 20% of assets in private credit and others with percentages in the mid-teens.
A Kentucky Public Pensions Authority representative had no immediate comment.
PENSION FUNDS DETAIL ALLOCATION PLANS
In Arizona, the state’s Public Safety Personnel Retirement System (PSPRS) currently has around 17% of its assets in private credit and aims to get to 20%, Chief Investment Officer Mark Steed said in an interview.
“We still believe fundamentally that the asset class has a strong role to play in pension portfolios,” Steed said, but added that the trillions of pension dollars going into private credit funds had “got out of hand” in recent years, increasing competition and lowering underwriting standards. “There’s going to be a shakeout,” he said.
The State Teachers Retirement System of Ohio (STRS Ohio) said in a report published on its website last June that it remained focused on building its private credit direct and co-investment portfolio, and as of April 2025 had investments in 537 companies with a net asset value of approximately $1.8 billion. It then said it expected the allocation to private credit will be around 10% throughout the fiscal year ending in September 2026.
STRS Ohio representatives did not respond to messages.
CAUTIOUS OPTIMISM AMONG PENSION CHIEFS
Michael Wissell, chief investment officer of the Healthcare of Ontario Pension Plan, said it is cautiously optimistic about private credit even if returns last year were not great.
“It’s something that we continue to be interested in, but again, it’s sort of very idiosyncratic,” Wissell said.
In a report for a board meeting of the Los Angeles County Employees Retirement Association (LACERA) on Wednesday, Chief Investment Officer Jonathan Grabel noted how its credit category – which includes private credit – has outperformed its benchmarks over the past one-, three- and five-year periods but is trailing in the current fiscal year.
“Credit continues to fulfill its strategic objectives of income generation, diversification and moderate risk while remaining within guidelines,” Grabel wrote.
During the meeting, which was webcast, LACERA Senior Investment Officer Chad Timko said it tries to use credit firms “who are raising a modest amount of capital and not too much. And this allows them to be highly selective when underwriting loans, negotiating creditor rights and terms.”
(Reporting by Ross Kerber in Prescott, Arizona, Isla Binnie in New York and Nivedita Balu in Toronto; Editing by Vidya Ranganathan and Matthew Lewis)
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