Several prominent North American public pension systems are keeping their commitments to private credit investments even as the sector endures increased stress in some corners, reflecting a continued belief among pension managers that the asset class has a role in long-term portfolios.
California State Teachers' Retirement System (CalSTRS), which manages roughly $402 billion, holds positions in private credit funds including vehicles managed by Blue Owl Capital Inc., and is the largest investor in one of Blue Owl’s publicly traded business development companies (BDC), Blue Owl Capital Corp, according to LSEG data. Blue Owl last week restricted withdrawals from two non-traded versions of its BDCs after record redemption requests from investors.
Those limits on redemptions follow a wave of pressure on several BDC managers, prompted by investor concerns about rising competition in the private credit space, weaker returns and the possibility that technological shifts - including those tied to artificial intelligence - could alter the prospects of certain software businesses that have been financed by private credit lenders.
A CalSTRS spokesperson declined to discuss Blue Owl specifically but framed the fund’s approach as long-term.
"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 Melissa Jones-Ferguson, the fund’s spokesperson, via email.
Data available through the end of 2024 showed material private credit allocations at multiple U.S. public systems, with two Kentucky pension systems holding roughly 20% of assets in private credit and other plans allocating in the mid-teens. A representative for the Kentucky Public Pensions Authority had no immediate comment.
State-level funds are spelling out allocation plans and rationales. In Arizona, the Public Safety Personnel Retirement System (PSPRS) currently has about 17% of its assets in private credit and is targeting an increase 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, while also noting the rapid inflows of pension capital into private credit in recent years. He added that the significant volume of pension-dedicated capital had intensified competition and, in his view, loosened underwriting standards.
"There’s going to be a shakeout,"
he said.
The State Teachers Retirement System of Ohio (STRS Ohio) reported last June that it remained focused on growing its private credit direct and co-investment business. The fund reported that as of April 2025 it had investments across 537 companies with a net asset value of approximately $1.8 billion, and it expected its allocation to private credit to be around 10% through the fiscal year ending September 2026. Representatives for STRS Ohio did not respond to requests for comment.
Some pension chief investment officers described a cautious optimism toward private credit despite weaker returns during the prior year. Michael Wissell, chief investment officer at the Healthcare of Ontario Pension Plan, said the fund remains interested in private credit but that the outcomes tend to be highly idiosyncratic.
"It’s something that we continue to be interested in, but again, it’s sort of very idiosyncratic,"
Wissell said.
At the Los Angeles County Employees Retirement Association (LACERA), a recent board report from Chief Investment Officer Jonathan Grabel noted that the broader credit category, which includes private credit, had outperformed its benchmarks over one-, three- and five-year periods but was lagging 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 same board meeting, which was webcast, LACERA Senior Investment Officer Chad Timko described a selective approach to manager selection.
"We try 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,"
Timko said.
Across the plans, trustees and investment officers emphasized three recurring themes: a long-term orientation toward returns and income generation, an effort to be selective in manager and deal choice, and an awareness that elevated industry flows have altered competitive dynamics and underwriting standards.
Those views underscore why several large public pension funds continue to allocate meaningful portions of their portfolios to private credit even as parts of the BDC and non-traded BDC market absorb heightened redemption activity and investor scrutiny.
While pension officials vary in the scale of their exposure and in their immediate allocation targets, the common thread is that private credit remains an intentional and strategic component of many long-duration public pension portfolios.