Private Equity’s Pension Heist
Public pension funds’ investment in private credit has soared, but it’s ever harder to tell where the money is flowing. The winners are private equity firms, who take advantage of our pension pots while hiding their activities, and fees, from view.
Of the first billion in seed money it raised, $300 million in Joshua Kushner’s Thrive Capital came from a CalPERS investment, that is, from California’s state pension fund. (David Paul Morris / Bloomberg via Getty Images)
From 2024 to 2025, the two hundred largest pension funds in the United States increased their investment in private credit by 57 percent. It’s now gone up around 650 percent over the past five years. Private credit is the other side of the coin to private equity (PE) — among other things, it provides the loans for PE firms’ leveraged buyouts. The biggest PE firms have massive private credit arms that have, in recent years, overrun their private equity cores. They act as the unregulated winners of the postrecession economy, avoiding scrutiny and taking risks that commercial banks were foreclosed from under the Dodd–Frank Act.
Our worker-funded public pensions have historically been the primary capital provider to private credit funds, amounting to around 30 percent of the total market. Many of these same private credit funds have found themselves in a world of trouble over the past twelve months, just as public pensions have loaded them up with increasing capital. The chief investment officer at New York City retirement systems recently told the Financial Times, “We have completely committed to private credit, we are willing to trade illiquidity and complexity for a higher return.”
As is the case in all investing, higher ceilings come with lower floors. Credit defaults, according to Fitch ratings, are hitting record highs and nonaccrual status loans, i.e., ones where borrowers are in serious trouble, spiked 40 percent since this March. In response to these issues on the borrower end, private credit funds have extended their lockup period, put hard-line caps on redemptions to prevent runs on capital, and opened up investment to 401(k) holders and individuals to increase capital inflows.
This article is for subscribers only. Please login or subscribe to access our full archives and beautiful print and digital magazine starting at just $3 a month.