Canadian investors amass $360bn private credit exposure, with US accounting for bulk

Canadian investors have amassed over $360 billion in private credit exposure, with the majority of those investments tied to borrowers and funds outside of Canada, according to a Bloomberg report citing research from the Bank of Canada. The central bank's analysis reveals that Canadian pension funds and insurers are increasingly playing a significant role in global private lending, particularly in the United States.

At the end of 2025, the three largest Canadian pension funds held approximately $215 billion in private credit, representing around 9% of their total invested assets. In the first quarter of 2026, the country's three biggest life insurers held just over $200 billion in the asset class, accounting for about 22% of their invested assets.

The Bank of Canada's broad definition of private credit includes loans and similar forms of financing provided by non-bank lenders to businesses, accounting for about 15% of the credit liabilities of Canadian private non-financial companies.

Over the past decade, the proportion of non-bank lending in Canada has remained relatively stable. However, the US market has seen a surge in private credit activity, with Canadian investment funds holding around $54 billion in private credit in 2025, a more than 60% increase from 2020. Though the central bank's estimate may be an underestimation, more than 40% of these investments were related to real estate.

Despite this growth, private credit remains a relatively small financing source for Canadian companies, with banks and public debt markets continuing to dominate. Canadian banks also have substantial exposure to the international private credit market, holding at least $40 billion in loans to asset managers operating private credit funds, predominantly in the US.

The Bank of Canada notes that these exposures are typically structured to protect lenders, as subscription facilities are often provided by Canadian lenders to fund investors, ensuring they bear losses before the banks.

As the scale of Canada's offshore private credit exposure grows, regulatory attention is increasing to assess how stress in this sector could impact the financial system. The Bank of Canada has expressed concerns over the industry's complex structures, limited transparency, and relatively short history through severe economic downturns. If problems arise in overseas private lending markets, they could affect Canadian pension funds and insurers, as well as broader financial conditions in the country.

However, the central bank believes the direct risks to Canada's financial system remain manageable, as pension funds and insurers generally have long-term investment horizons and limited reliance on short-term funding. This reduces the risk of forced asset sales during periods of market stress. Their direct lending activities also provide better access to borrower information and more control than investing through private credit funds.