Private credit has moved from a niche allocation to a core holding for institutional investors, with assets hitting $3trn by early 2026
Factors such as the structural retrenchment by bank lenders driven by tighter regulatory standards, have played a part in creating a sustained demand for non-bank ‘disintermediated’ financing.
In private markets, lenders can provide capital to a broad range of borrowers and at various levels of seniority. The private credit market now includes direct lending, asset‑backed, and more tailored debt capital solutions.
It is within this framework that private credit is becoming a key investment component for members of the LGPS.
Private credit is one of the four core private market asset classes LGPS Central invests in – alongside private equity, infrastructure, and property.
The Midlands-based pool runs dedicated private credit programmes and funds, such as the Credit Partnership vehicles, allocating capital across multiple managers and strategies.
It has committed over £1.1bn across multiple private credit managers via its Credit Partnership II. LGPS Central cite the benefits of private credit as being “a proper diversifier,” – although this is just one benefit of private credit as an investment.
Investment tool
Rohit Kapur, Border to Coast private markets portfolio manager, offers an excellent insight into how the Leeds-based pool utilises private credit.
“To investors such as Border to Coast, with long‑term investment horizons and relationships with best-in-class managers offering differentiated sourcing and rigorous underwriting, private credit has become an important tool to access diversified, high income streams with lower levels of underlying volatility compared to public markets,” he said.
Indeed, it is true to say that LGPS players allocate their portfolios to private credit for a mix of return, diversification, and liability management reasons. In addition, private credit isn’t used just because it has become the new trend, but also because traditional assets like government bonds have become harder to rely on for long-term pension promises.
In this way, as of March 2025, Border to Coast’s private markets private credit commitment from partner funds now totals £5.2bn.
Another LGPS pool, the Wales Pension Partnership has also developed a private credit investment programme – starting way back in 2022 – to provide a tailored and diversified solution for its constituent authorities.
Addressing critics
For all the positive, upward trend in private credit, it is not all completely rosy in the private credit garden. There has been some recent criticism of private credit with media attention focused on asset-based lending situations such as Tricolor, First Brands and MFS.
But recent scrutiny and negative publicity has done little to deter LGPS investors. “Some private credit funds have been named as lenders in these situations, although as a proportion of the private credit market, exposure to these names is minimal,” noted Kapur. “It is also important to note that banks and securitisation markets were significant providers of capital to the aforementioned names.”
The so-called semi liquid private funds have also come under a negative spotlight. “While we remain vigilant to developments in the market, the recent criticism centred around semi-liquid private funds, which allow client redemptions and are targeted at retail and wealth management clients,” said Kapur. “All Border to Coast’s private credit investments are held in institutional fund structures and we do not invest in any semi-liquid PC funds,” Kapur added.
Other factors also come into play with this asset class, noted Kapur. “Private credit is a mostly below-investment grade asset class and defaults and losses on some individual lines will reflect this,” he added.
Given the low starting point for defaults following several years of robust global growth, Border to Coast account for a higher level of defaults when projecting returns. “All cycles end and we continually assess our loss assumptions, being prepared to increase them if warranted,” said Kapur.
Valuable tool
The reality is that private credit is proving a valuable investment tool for the LGPS. So far, Border to Coast’s PC Series are delivering against their strategic objectives.
Private credit also provides other benefits for the LGPS. “It’s also noteworthy that this is an area where we can really leverage our scale, which we have used to drive down manager expenses,” said Kapur. “We’ve demonstrated our ability to do so over the three PC programmes through active negotiations and judicious use of co-investment vehicles.”
As the asset class develops, David Wilmot, partner at Apera Asset Management, part of Franklin Templeton, noted how the asset manager has developed a specific offering within the lower mid-market in European private credit. “That has addressed the part of the market bigger managers have gone away from,” noted Wilmot.
It is in this specific area which can offer the LGPS some real benefits. “If you are an LGPS looking for stability of returns, which naturally they do, and a prudent investment, then you can do that through the resilient contractual return profile, prudent financing structures and structural protections inherent in the lower mid-market,” he said.
Adding more detail to this argument, Wilmot added: “You are diversifying away from the upper mid-market space and getting lower volatility, because lower mid-market offers greater inherent stability in the structures: you continue to get the income generation that you are looking for, and at a better absolute level as well. It is a different risk-return dynamic.”
