“[In the U.S.,] private credit is emerging as a viable alternative to bank lending and public debt markets and, in some segments, has become a primary source of financing,” the report noted. “This has attracted the attention of investors and financial institutions — including those in Canada.”
In May, the Bank of Canada flagged private credit as a risk in its financial stability report, according to a report by the Canadian Press. The bank rated the risks associated with this space as “manageable.” More companies are pursuing fast and flexible ways to access capital, leading to the rise of private credit, it said.
The central bank noted pension funds and life insurers have accumulated significant experience managing the risks that come with private credit, meaning both investors are well suited to invest in the space.
For institutional investors, private credit is an asset designed to provide stable income and diversification to the portfolio with access to private lending opportunities. By investing in private credit markets, investors provide non-bank lending going directly to private companies. Typically, companies will seek this option when they can’t access bank financing or want customized capital options.
Read: Four Canadian pension funds increasing exposure to private credit: report
Due to an increase in the period of time companies elect to stay private, there has been increased demand for private credit services.
The bank estimates Canada’s three largest life insurers held a little more than $200 billion in private credit investments as at the first quarter of 2026. The sum represents about 22 per cent of their collective invested assets. Meanwhile, Canada’s large pension funds held an estimated $215 billion, or about nine per cent, in private credit at the end of 2025.
A recent study from the CFA Institute Research & Policy Center found the growth of private markets reflects a broader shift in the way capital is “intermediated away from traditional bank balance sheets and public markets toward non-bank, privately negotiated channels.”
Institutional investors have a leg up in this market due to direct negotiations, full disclosure and access to intercreditor protections, the CFA noted.