Canada backs $500B private credit surge abroad

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Canada’s financial institutions have quietly amassed a $500 billion position in private credit markets, nearly all of it outside the country.

Most capital flows to the U.S.

The Bank of Canada reported that by early 2026, Canadian banks and investors held about $500 billion in private credit assets, equivalent to roughly US$360 billion. The majority operates in the United States, where private credit has become a key funding source for leveraged buyouts and corporate transactions.

Life insurers are the largest participants. The three biggest Canadian life insurers held just over $200 billion in private credit investments in the first quarter of 2026, accounting for 22% of their invested assets. That proportion has stayed consistent over the past five years. Pension funds follow closely, with an estimated $215 billion at the end of 2025, representing about 9% of their invested assets.

The central bank noted that less than 1% of the insurers’ holdings fall into the higher-risk segment. The 22% total also includes privately placed corporate debt, a long-standing tool used to match long-term liabilities.

Domestic lending remains unchanged

Within Canada, non-bank loans have stayed at about 15% of business funding for the past decade. Banks and public debt markets continue to provide roughly three-quarters of corporate financing, a share slightly below pre-2008 levels.

Canadian investment funds held $54 billion in private credit in 2025, an increase of over 60% since 2020. More than two-fifths of that amount is linked to real estate loans. Yet these holdings make up only about 1.5% of the total net assets of Canadian stand-alone investment funds. The figure likely undercounts the exposure, as some fund-like entities, including mortgage investment corporations, are not fully reflected in the data.

Banks have also entered the market indirectly. They extended at least $40 billion in loans to asset managers running private credit funds in early 2026, most of them based in the U.S. That amounts to roughly 1% of their total lending. These loans are usually secured by capital commitments from the fund’s investors and repaid before other fund participants.

For Canadian businesses, the arrangement has had little effect. The funding mix has stayed the same, even as the country’s largest financial institutions direct capital into a market that has expanded globally since 2009. The U.S. private credit market reached $1.34 trillion by mid-2024, according to a FEDS Notes analysis by Jose Berrospide et al.

The difference extends beyond size. Private credit borrowers typically have lower credit quality and higher leverage than those in public markets. The Financial Stability Board has highlighted increased use of payment-in-kind terms and default rates rising from historically low levels.

For these investors, the approach provides a more direct view of credit risks than fund investments. Their long-term horizons and minimal dependence on short-term funding allow them to hold illiquid assets during market stress. However, the Bank of Canada cautioned that a severe downturn in private credit abroad could still have domestic consequences. Measuring that risk is challenging, the central bank stated, because “transparency is limited, and leverage can be difficult to assess.”

A May 2024 Federal Reserve report identified private credit as a top concern for U.S. financial stability. It cited weaker debt-servicing capacity among riskier private firms on floating-rate debt and noted that some non-traded business development companies had restricted redemptions after demand surged.

In Canada, the effects are less apparent. Local businesses still depend almost entirely on traditional lenders. Yet the country’s major financial institutions are now deeply involved in a market that regulators increasingly scrutinize.

As capital shifts toward alternative assets, the long-term stability of these investments remains a key question for policymakers.