Private credit – business lending by non-bank institutions – has grown rapidly.
The Financial Stability Board estimated the global private credit market at between $1.5 trillion $2.0 trillion at the end of 2024, including $1 trillion for the U.S. alone. In Canada, it expanded by 16% over five years. More recent estimates from PwC Global Asset and Wealth Management and the ESG Research Centre suggest the market is now over $2 trillion and could reach $3.4 trillion by 2030.
The Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA), estimates that the global private credit market has already reached US$3.5 trillion.
While the numbers differ, they all point in the same direction: private credit is becoming an increasingly important part of global finance.
Increasingly mainstream
Private credit has also been moving beyond institutional portfolios as retail investors look to alternative assets for diversification.
In the United States, the Department of Labor has proposed a rule (Fiduciary Duties in Selecting Designated Investment Alternatives) making it easier to include alternative investments in 401(k) retirement plans. The proposal implements part of a White House executive order aimed at “Democratizing access to Alternative Assets for 401(k) Investors”, and reversing previous restrictions that discouraged nontraditional holdings.
Whether this proposal becomes a rule or not, the retailization of private credit is already underway.
An Alternative Investment Management Association (AIMA) and Alternative Credit Council (ACC) survey finds that 66% of private-credit managers are actively targeting retail and high-net-worth investors for new funds.
And yet. According to Morningstar’s Investor Perspectives: Retail Investor Survey, only 19% of Canadian investors say they understand private investments. That compares with 24% in the United States and 18% in both Australia and the United Kingdom. Meanwhile, 45% of U.S. investors do not invest in alternative assets at all.
So are private investments too risky for retail investors?
Too risky for retail investors?
In comment on the DOL’s proposed rule, the Public Investors Advocate Bar Association, an international bar association comprised of attorneys who represent investors in securities litigation, warned that alternative investments often involve long lock-up periods, redemption restrictions and gating mechanisms. These features can prevent investors from accessing their savings when they need them.
Some of the most egregious cases our members have arbitrated on behalf of investors involve illiquid investments sold into retirement accounts held by retirees who need access to their savings to live on now. Public Investors Advocate Bar Association.
Perceived opacity hurts private investment reputation
As retail money flows into semi-liquid or lightly regulated vehicles, the CFA Institute Research and Policy Center warns of greater potential for liquidity mismatches, opaque valuations and redemption shocks, particularly during a market downturn.
MSCI summarized the broader problem: “Liquidity pressure, uneven confidence in private market valuations and emerging stress in private credit all point to the same issue: Investors cannot see clearly enough into what they own.”
“There is concern that investors may not be seeing how risk is changing inside portfolios until it has already spread,” the MSCI adds.
Negative headlines
As it turns out, private credit itself has faced a growing number of negative headlines, particularly around exposure to software companies, redemption pressures in semi-liquid funds and uncertainty over asset valuations.
Private credit on Canada’s financial sector radar
The Bank of Canada itself acknowledges that assessing Canadian institutional investors’ exposure to foreign private-credit markets is challenging. Transparency is limited, leverage is difficult to measure and links to the broader financial system are still being mapped.
Its 2026 Financial System Survey of opinions of senior experts in risk management in organizations active in the financial sector have put private credit on their risk radar. Respondents identified asset pricing among the top three risks that would have the most severe impact on their organization if those risks were to occur over the next three years.
Among new developments that their organization started monitoring within the past 12 months (the survey took place between February 23 and March 13, 2026), respondents mentioned private markets. In particular, “some respondents raised concerns about illiquidity, noting that private market investors are increasingly unable to exit positions or redeem their shares from private credit funds.”
If investors must sell publicly traded assets to raise cash, stress in private markets could spill over into the valuations and liquidity of public markets.
A stable source of funding for Canadian businesses
Still, private credit does provide tangible benefits.
A Bank of Canada research on private credit, describes private credit as a stable, although still relatively limited, source of financing for Canadian businesses. Banks provide 41% of businesses’ external financing and public debt markets provide another 38%. Non-bank loans account for 16%.
Private credit can give businesses faster access to financing and more flexible terms than they might obtain through banks or public markets. For investors, it can provide diversification and the potential for higher returns.
The institutional staying power
Despite the negative headlines, institutional demand is resilient.
Mercer Global Insurance Investment Survey finds that “Private credit is the leading area of planned allocation growth”, with Canada leading the way: 74% of Canadian insurers plan to increase private credit allocations over the next 12–24 months, vs 57% globally.
Those receiving allocations expect an increase in the coming year. PwC 2026 Global Private credit survey of over 120 credit portfolio managers found that 81% expect allocations to private credit to increase over the coming year. Among them, 44% say the increase could exceed 20%.
Canadian investors’ exposure to foreign private credit markets
The Bank of Canada’s research corroborates the appetite among institutional investors. They are active in foreign private credit markets, particularly in the United States, where private credit has become a viable alternative to bank lending and public debt, and a primary source of financing in some market segments.
The Bank of Canada estimates that private lending by Canadian investors, combined with Canadian bank lending to private-credit funds, totalled approximately $500 billion in early 2026. “Most of this lending is taking place in the United States.”
Most of this exposure comes from life insurers and pension funds.
- Life insurers and pension funds
In early 2026, Canada’s three largest life insurers held just over $200 billion in private credit. This represented 22% of their total invested assets, a share that has remained stable over the past five years.
Large Canadian pension funds held slightly more – approximately $215 billion at the end of 2025 – but private credit accounted for only 9% of their invested assets.
In other words, pension funds held more private credit in dollar terms, but life insurers had more than twice the portfolio concentration.
- Investment funds
Canadian investment funds increased their private-credit holdings by 60% between 2020 and 2025. They held $54 billion in 2025, primarily in real-estate loans.
However, private credit represented only 1.5% of the total net assets of stand-alone Canadian investment funds, a proportion that has remained stable since 2020. The Bank of Canada cautions that this exposure may be underestimated.
- Banks
Canadian banks had lent approximately $40 billion to asset managers operating private-credit funds as of the first quarter of 2026. That represented only 1% of their overall lending.
According to the Bank of Canada, these loans carry relatively limited risk because they are secured and rank ahead of claims from other fund investors.
Still, because of such international exposure, “a sharp downturn in the performance of private credit abroad could affect Canadian investors and business lending in the domestic economy.”
More stability than stress?
The private-credit industry argues that the risks are manageable and the Alternative Investment Management Association finds “more stability than stress”.
AIMA says first-quarter 2026 data indicate that private-credit loan portfolios remain broadly “stable and resilient”. It also maintains that markdowns in software-related loans have so far been contained.
Loans to software companies have drawn attention due to the disruptive power of AI.
The Bank for International Settlements estimates that business development companies have lent approximately US$115 billion to software firms. That represents one-fifth of their total lending and 80% of their technology portfolios.
“Recently, (lenders) credit spreads have narrowed, reducing the buffers to absorb losses, and a few large BDCs are exposed to a shared pool of borrowers, though low leverage and secured lending may limit spillovers,” the BIS said. “Opaque exposures beyond BDCs could amplify the impact of any disruption from generative AI, leaving the sector more vulnerable than its credit metrics suggest.”
Besides, Fitch Ratings reported that the U.S. private credit default rate reached a record high of 6.0% in May.
No systemic risk despite broadening transmission
S&P Global Ratings acknowledges growing stress but does not currently see private credit as a systemic risk.
It is watching four developments:
- Increasing connections among market participants
- More complex and leveraged investment structures
- Growing use of semi-liquid vehicles by retail investors
- Concentrated exposure to sectors such as software that face disruption from AI
Scope Ratings reaches a similar conclusion. It sees no contagion “at this stage,” but says there are signs that the transmission of risk is broadening.
Translating awareness into understanding
In times of stress, understanding can prevent uncertainty from turning into panic. Yet private markets remain poorly understood, reinforcing their reputation for opacity.
If fund managers want to attract retail investors, they need to explain more than what private credit is. Investors also need to understand why features such as lock-ups, redemption limits and gates exist, what purpose they serve, how they work and under what circumstances they may restrict access to capital.
As private credit moves further into the mainstream, greater awareness is not enough. Transparency will not eliminate risk, but it can help investors understand that risk before market stress puts their confidence to the test.
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