Which investors supply the majority of the capital for private credit?
The main sources of capital for private credit funds are institutional investors with long-term investment horizons and low liquidity needs. They include public and private pension funds, insurance companies, and sovereign wealth funds. Insurance companies, in particular, have increased their asset allocations toward private credit. Institutional investors mainly seek attractive returns on their locked-up investments. Retail investors represent a small but growing share.
Among institutions, U.S. pension funds are currently the largest source of capital for private credit. According to Securities and Exchange Commission disclosures by private asset managers, public and private pension funds held roughly 30 percent of private credit fund assets as of June 2024. Indeed, the 200 largest defined benefit funds increased their private credit assets by 57.2% from 2023 to 2024.
Several large public pension funds are increasing their allocations to private credit. The $264 billion New York City Employees Retirement System, for instance, recently announced that it was expanding into private credit because it is a “cheap asset,” leading to a faster increase in its allocation. CalPERS, the largest defined benefit public pension fund in the United States with $503 billion in assets, has raised its private credit allocation from 5% to 8%.
Sovereign wealth funds (SWFs) are also showing increasing interest in private credit. Singapore’s Temasek Holdings recently launched a private credit platform with an initial portfolio valued at about $7.8 billion, which includes direct investments and credit funds. Abu Dhabi Investment Authority and Mubadala Investment Company have recently invested heavily in global private credit funds and formed partnerships with major players like KKR. Additionally, the Indonesia Investment Authority is reportedly allocating more resources to private credit and is open to co-funding opportunities. Overall, 63% of SWFs now invest in private credit funds, and half plan to significantly or moderately increase their allocations, according to a 2025 survey of SWF managers by Invesco.
Meanwhile, the industry is increasingly seeking retail investors through publicly traded vehicles for private credit called Business Development Corporations, which make up nearly half of the loans in private credit. Goldman Sachs and Morgan Stanley both sponsor large BDCs.
While most private credit funds are closed-end, locking in investors for specified periods, BDCs are open-ended, allowing investors to cash out at any time. Some sponsors of private credit funds are also experimenting with structures such as “evergreen” or “interval” funds, which permit investors to redeem a portion of their investment at regular intervals. Additionally, there is now a private credit Exchange Traded Fund created jointly by State Street Bank and Apollo Management. Launched in February, the ETF combines public and private credit instruments.
Given banks’ growing involvement in private credit, either independently or through partnerships with PE firms, however, regulators worry that the industry’s increasing focus on retail investment could cause a funding mismatch, risking the stability of the financial system.
A recent report by the Basel, Switzerland-based Bank for International Settlements states, “From a financial stability perspective, developments in funds’ investor base, including the growing role of insurance companies and retail investors … warrant monitoring.”
