U.S. Pension Fund Underallocated to Private Debt — Evening Brief – 01.27.25
Private credit has rapidly evolved over the past five years into a scaled asset class, making it challenging for allocators to identify successful managers and evaluate the various strategies within this space.
U.S. pension funds, for example, are largely underallocated to private debt, with S&P Global Market Intelligence reporting that among 118 funds, 77 fall short of their targets, 34 exceed them, and seven meet their goals.
The report revealed that U.S. pension funds have a median target allocation of $175.5 million to private debt, compared to a median actual allocation of $147.5 million, reflecting a $28 million aggregate underallocation as of January 3. However, this marks improvement since August 2024, when the underallocation was $76 million, indicating increased exposure to private debt.
The California Public Employees’ Retirement System (CalPERS) has the largest underallocation to private debt among U.S. pension funds, falling $25.72 billion short of its target. Despite this, CalPERS reported a strong 17% one-year return on private credit investments in November 2024, making it the second-best performing asset class after public equities. CalPERS has since increased its private debt allocation to 8% from 5% of plan assets.
The Western Conference of Teamsters Pension Trust (WCTPT) ranks second in underallocation to private debt, with $2.05 billion allocated compared to a $5.13 billion target. Its target allocation to private debt is 9% of assets, a notable increase from its current 3.60%, according to Preqin data cited by S&P Global Market Intelligence.
The Pennsylvania Public School Employees’ Retirement System recorded the highest overallocation to private debt, with an actual allocation of $5.99 billion, exceeding its target by $1.50 billion.
The Texas County & District Retirement System ranked second in overallocation to private debt, with $13.10 billion allocated, nearly $1 billion above its $12.13 billion target. CalPERS emerged as the largest allocator to private debt with $16.36 billion, followed by the Virginia Retirement System at $16.12 billion. Conversely, the Dallas Police and Fire Pension System, Texas Abilene Firemen’s Relief & Retirement Fund, and IBEW Local 150 Supplemental Pension Fund reported the lowest private debt allocations, at $1 million each.