Key Takeaways
- • Across 118 US pension funds, 77 remain underallocated to private debt, 34 exceed their targets and seven match them, according to S&P Global Market Intelligence data as of Jan. 3.
- • The median target allocation is $175.5 million versus a median actual allocation of $147.5 million, an aggregate underallocation of $28 million.
- • Aggregate exposure has risen since August 2024, when the net underallocation was $76 million.
- • CalPERS has the largest underallocation at $25.72 billion below target, yet is also the top allocator at $16.36 billion.
- • Pension funds cite limited staffing and bandwidth, plus rebalancing after strong public market gains, as reasons for lagging targets, per KPMG and Monroe Capital.
Summary
US pension funds remain below their median target allocation to private debt, although their aggregate exposure to the asset class has grown. S&P Global Market Intelligence data covering 118 US pension funds show 77 funds underallocated, 34 overallocated and seven at target as of Jan. 3, 2025. The median target allocation stands at $175.5 million against a median actual allocation of $147.5 million, implying an aggregate shortfall of $28 million. That gap has narrowed from a net underallocation of $76 million in August 2024.
The largest shortfall belongs to the California Public Employees' Retirement System (CalPERS), which sits $25.72 billion below target, even though it is also the top allocator with $16.36 billion in private debt. In November 2024, CalPERS reported a 17% one-year return from private credit, its second-best performing asset class after public equities, and announced an increase in its private debt target to 8% of plan assets from 5%. The Western Conference of Teamsters Pension Trust ranked second on underallocation, with $2.05 billion actual versus $5.13 billion target, according to Preqin data. Its target is 9% of assets against a current 3.60%.
On the overallocation side, the Pennsylvania Public School Employees' Retirement System holds $5.99 billion, $1.50 billion above target, while the Texas County & District Retirement System holds $13.10 billion, nearly $1 billion above its $12.13 billion target. The Virginia Retirement System follows CalPERS with $16.12 billion in private debt.
KPMG global sovereign wealth and pension funds tax lead David Neuenhaus attributes the shortfalls to infrastructure and internal resource limits and to rebalancing after substantial public market gains. Zia Uddin, president of middle-market lender Monroe Capital, said bandwidth constraints and lengthy manager diligence are factors, adding that the growing number of nonbank lenders increases the number of managers pensions must evaluate. Uddin expects pension flows into private credit to continue, citing diversification, dependable yield and low mark-to-market volatility. He also expects a robust 2025 M&A year after private equity M&A value rose 25% in 2024, which underpins private debt deal flow for lenders like Monroe, which completes 110 to 130 deals annually.
The largest shortfall belongs to the California Public Employees' Retirement System (CalPERS), which sits $25.72 billion below target, even though it is also the top allocator with $16.36 billion in private debt. In November 2024, CalPERS reported a 17% one-year return from private credit, its second-best performing asset class after public equities, and announced an increase in its private debt target to 8% of plan assets from 5%. The Western Conference of Teamsters Pension Trust ranked second on underallocation, with $2.05 billion actual versus $5.13 billion target, according to Preqin data. Its target is 9% of assets against a current 3.60%.
On the overallocation side, the Pennsylvania Public School Employees' Retirement System holds $5.99 billion, $1.50 billion above target, while the Texas County & District Retirement System holds $13.10 billion, nearly $1 billion above its $12.13 billion target. The Virginia Retirement System follows CalPERS with $16.12 billion in private debt.
KPMG global sovereign wealth and pension funds tax lead David Neuenhaus attributes the shortfalls to infrastructure and internal resource limits and to rebalancing after substantial public market gains. Zia Uddin, president of middle-market lender Monroe Capital, said bandwidth constraints and lengthy manager diligence are factors, adding that the growing number of nonbank lenders increases the number of managers pensions must evaluate. Uddin expects pension flows into private credit to continue, citing diversification, dependable yield and low mark-to-market volatility. He also expects a robust 2025 M&A year after private equity M&A value rose 25% in 2024, which underpins private debt deal flow for lenders like Monroe, which completes 110 to 130 deals annually.
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