Canadian pension funds, insurers and investment pools have amassed hundreds of billions of dollars in private credit exposure, prompting Bank of Canada researchers to warn a sharp downturn abroad could pose risks to Canada's financial system.The combined value of private lending by Canadian investors and loans from Canadian banks to private credit funds reached approximately $500 billion at the beginning of 2026, according to the Bank study Private Credit In Canada.Blacklock's Reporter said most of that lending is taking place in the United States.“A sharp downturn in the performance of private credit abroad could affect Canadian investors and business lending in the domestic economy,” said the study.Researchers said determining the extent of the risk remains difficult because the private credit market has limited transparency and operates largely outside traditional regulatory structures.“Assessing these risks is challenging because transparency is limited, leverage can be difficult to measure and links to the broader financial system are still being mapped,” said the Bank. “But these challenges are worth taking on.”The Bank said information about Canada's private credit market and Canadian investors' connections to the global industry remains limited.“Our analysis helps address this gap,” researchers wrote. “We find that although Canadian businesses are not overly reliant on private credit, domestic asset managers collectively have built a meaningful presence in private credit markets abroad.”Private lending to Canadian businesses has remained relatively steady at approximately 15% over the past decade.About three-quarters of Canadian borrowers instead rely on banks and credit unions or raise money through public markets.“The situation in Canada contrasts with that in the United States,” said the study. “There, private credit is emerging as a viable alternative to bank lending and public debt markets.”Canada's three largest life insurers held more than $200 billion in private credit investments, representing approximately 22% of their invested assets, according to the Bank.Canadian pension funds accounted for another $215 billion in private credit, equivalent to roughly 9% of their invested assets..Investment pools held approximately $54 billion, a smaller share of the total but one that has increased more than 60% since 2020.More than two-fifths of those loans were connected to real estate, researchers said.The Bank warned the rapid expansion of private credit has largely taken place beyond the traditional regulatory system.“The growth of private credit has been happening largely outside a regulatory environment, raising concerns about potential effects on financial stability,” researchers wrote.The Bank said borrowers may seek financing from non-bank lenders when conventional financing is unavailable, potentially increasing the risk carried by investors.“Borrowers sometimes turn to non-bank lenders when they can’t easily access financing from traditional sources,” said the study. “That can make the loans riskier than usual for the investors involved, particularly where regulatory oversight is lighter.”Researchers said private credit remains a relatively small and stable source of financing for Canadian businesses, but Canada's major asset managers have increasingly exposed themselves to the global market.“Canadian asset managers, however, are actively participating in private credit globally, creating exposures that could matter for financial stability in Canada,” said the Bank.
