More than a third (36 per cent) of Local Government Pension Scheme (LGPS) funds are planning to increase their allocations to private credit in 2025, according to an industry poll.

Attendees at the Pensions and Lifetime Savings Association's (PLSA) Local Authority Conference were asked whether they were planning to increase their allocations in 2025, with 18 per cent stating they had no plans to allocate more of their portfolio to private credit.

Nearly half (45 per cent) of the respondents said they were uncertain as to whether they would be increasing their allocations to the asset class.

Brightwood CEO and founder, Sengal Selassie, said that it was "probably appropriate" in the current environment for there to be interest in the asset class alongside caution.

“Private credit is expected to grow to one of the larger asset classes in alternatives,” he stated.

“It has become a portion of a number of investors’ allocations now that it is accessible to pension schemes.

“Of all the major [private] investment classes, it’s the second highest returner versus private equity, but with a much lower volatility. That has driven some of the demand side of it, that combination of predictability with good absolute return.”

London Borough of Haringey head of pensions and treasury, Tim Mpofu, said the LGPS fund, when looking at private markets, had found it to be an attractive area for several reasons, such as the fund’s long-term investment horizon and because it had a lot of liquidity.

Attendees also voiced their support for private credit investment if they met environmental, social and governance (ESG) criteria.

Nearly all (84 per cent) said they would pass on an attractive credit fund investment for ESG-related reasons, while 16 per cent said they would not.

However, Mpofu also pointed to reasons as to why there may be caution from LGPS funds thinking of investing in private credit.

“There tends to be a mismatch between valuation of the liabilities but also when you make that investment decision, it can be quite confusing,” he continued.

“There is an education piece that needs to be done, and by the time you have completed that you are probably moving on to a new valuation cycle and the landscape might have changed.

“To add to that, a lot of the strategies are close ended. We are in a higher interest rate environment, so we are able to achieve our discount rate with lower risk assets.”

---