Key Takeaways
- • Banks and pension funds are increasingly linked to private credit through loans and investments, shifting credit risk into less transparent, harder-to-value assets, according to the World Economic Forum.
- • The Financial Stability Board estimates private credit at $1.5 trillion to $2 trillion, and non-banks held 51% of global financial assets by end-2024.
- • In September 2026, HPS Corporate Lending Fund, managed by BlackRock-owned HPS, received redemption requests for 11.5% of outstanding shares but repurchased only 5%.
- • The FSB identified around $220 billion in drawn and undrawn bank credit lines to private credit funds in its May 2026 report, a relatively small but concentrated exposure.
- • The article recommends pilot stress-testing of the borrowing chain by the European Systemic Risk Board, mandatory valuation transparency, and standardized quarterly reporting by private credit managers.
Summary
Banks and pension funds are increasingly connected to the private credit sector, according to an analysis published by the World Economic Forum. Tighter bank regulation after the 2008 financial crisis, combined with low interest rates that pushed investors toward higher returns, has encouraged growth in non-bank lenders. By the end of 2024, non-banks held 51% of global financial assets, and the Financial Stability Board (FSB) estimates private credit at $1.5 trillion to $2 trillion. Pension funds and insurers are significant investors in the sector, meaning pension savings are increasingly exposed to private credit risk.
The article highlights valuation concerns. Private loans rarely trade, so fund managers estimate their value, and the International Monetary Fund has warned that valuations can be outdated and heavily dependent on judgement. Where withdrawals are priced using overstated asset values, departing investors may receive too much, leaving remaining investors to bear the shortfall. For defined-contribution savers, delayed losses could emerge close to retirement.
Recent market developments underline the issue. In September 2026, HPS Corporate Lending Fund reported shareholder requests to sell back 11.5% of its outstanding shares but said it would repurchase only 5%, leaving investors whose requests were not met exposed to subsequent changes in value. Separately, in 2025, 17 UK pension providers signed the Mansion House Accord, committing at least 10% of their main defined-contribution default funds to private markets by 2030. The FSB's May 2026 report identified around $220 billion in drawn and undrawn bank credit lines to private credit funds. While exposures remain relatively small overall, the article notes that financial difficulties could spread through these connections where exposures are concentrated.
A European Central Bank exercise covering euro area institutions found that a severe shock could affect insurers and pension funds more than banks. Direct private-credit losses appeared manageable, according to the exercise, with the largest effects arising from assumed falls in wider markets.
The article proposes three regulatory measures: a voluntary pilot by the European Systemic Risk Board mapping borrowers, lenders and investors, similar to an ongoing Bank of England private markets exercise; valuation transparency as a condition of new pension investments, including disclosure of independent valuation reviews; and standardized quarterly reporting by private credit managers on payment-in-kind interest, missed payments, loan extensions and fund borrowing relative to investor capital. The author concludes that while bank regulation has improved resilience, risks remain in private credit and its growing ties to banks, and that savers deserve to know what they own, how it is valued and who absorbs losses.
The article highlights valuation concerns. Private loans rarely trade, so fund managers estimate their value, and the International Monetary Fund has warned that valuations can be outdated and heavily dependent on judgement. Where withdrawals are priced using overstated asset values, departing investors may receive too much, leaving remaining investors to bear the shortfall. For defined-contribution savers, delayed losses could emerge close to retirement.
Recent market developments underline the issue. In September 2026, HPS Corporate Lending Fund reported shareholder requests to sell back 11.5% of its outstanding shares but said it would repurchase only 5%, leaving investors whose requests were not met exposed to subsequent changes in value. Separately, in 2025, 17 UK pension providers signed the Mansion House Accord, committing at least 10% of their main defined-contribution default funds to private markets by 2030. The FSB's May 2026 report identified around $220 billion in drawn and undrawn bank credit lines to private credit funds. While exposures remain relatively small overall, the article notes that financial difficulties could spread through these connections where exposures are concentrated.
A European Central Bank exercise covering euro area institutions found that a severe shock could affect insurers and pension funds more than banks. Direct private-credit losses appeared manageable, according to the exercise, with the largest effects arising from assumed falls in wider markets.
The article proposes three regulatory measures: a voluntary pilot by the European Systemic Risk Board mapping borrowers, lenders and investors, similar to an ongoing Bank of England private markets exercise; valuation transparency as a condition of new pension investments, including disclosure of independent valuation reviews; and standardized quarterly reporting by private credit managers on payment-in-kind interest, missed payments, loan extensions and fund borrowing relative to investor capital. The author concludes that while bank regulation has improved resilience, risks remain in private credit and its growing ties to banks, and that savers deserve to know what they own, how it is valued and who absorbs losses.
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