Canadian financial institutions and investment funds have built up around CAD500bn ($360bn) of private credit exposure, with the majority of those investments linked to borrowers and funds outside Canada, according to a report by Bloomberg citing new research from the Bank of Canada.
The central bank’s analysis highlights the growing role played by Canadian pension funds and insurers in global private lending, particularly in the US. However, private credit remains a relatively limited source of financing for Canadian companies, where banks and public debt markets continue to dominate.
Canada’s largest pension funds held approximately CAD215bn in private credit at the end of 2025, equivalent to around 9% of their invested assets. The country’s three biggest life insurers held slightly more than CAD200bn in the asset class during the first quarter of 2026, representing about 22% of their invested assets.
The Bank of Canada’s analysis uses a broad definition of private credit, encompassing loans and similar forms of financing provided by non-bank lenders to businesses.
Non-bank lending accounts for about 15% of the credit liabilities of Canadian private non-financial companies, a proportion that has remained broadly unchanged for the past decade. More than three-quarters of corporate financing still comes from banks and debt markets.
The picture is different in the US, where private credit managers have increasingly competed with banks and syndicated loan markets to finance leveraged buyouts and other corporate transactions.
Canadian investment funds held around CAD54bn in private credit in 2025, up more than 60% from 2020, although the central bank said its estimate is likely to understate the true figure. More than 40% of those investments were related to real estate.
Even after that growth, private credit accounted for only about 1.5% of the total net assets of Canadian investment funds.
Canadian banks are also exposed to the international private credit market. They had at least CAD40bn of loans outstanding to asset managers operating private credit funds in the first quarter, with most of that lending going to US-based managers.
The Bank of Canada said those bank exposures are generally structured to provide protection. Canadian lenders frequently provide subscription facilities backed by investors’ commitments to private credit funds, meaning fund investors would typically absorb losses before the banks.
Nevertheless, the scale of Canada’s offshore exposure is attracting greater regulatory attention as authorities assess how stress in private credit could spread through the financial system.
The Bank of Canada has previously highlighted concerns around the industry’s complex structures, limited transparency and relatively short track record through severe economic downturns. Problems in overseas private lending markets could affect Canada through losses at pension funds and insurers, as well as broader tightening in financial conditions.
For now, however, the central bank considers the direct risks to Canada’s financial system to be manageable.
Pension funds and insurers generally have long-term investment horizons and limited reliance on short-term funding, reducing the risk that they would be forced into asset sales during periods of market stress. Their direct lending activities can also provide greater access to borrower information and more control than investing through private credit funds.
The headline exposure of Canadian life insurers also needs to be viewed in context. Their allocation includes privately placed corporate debt, an established investment for insurers seeking long-duration assets that can match long-term liabilities while offering attractive yields and stronger covenants than some public bonds.
