LGPS funds and shadow lending: what £32bn in private credit means for council pension members

Update, 19 May 2026: A Reuters investigation published 13 May 2026 has put concrete figures on LGPS private credit exposure for the first time. Reviewing all 86 LGPS annual reports, Reuters found combined private credit and multi-asset credit exposure of over £32 billion, average 4.2% in private credit and 8.7% in multi-asset credit, with Lambeth holding nearly 26% of fund assets in these categories. The Bank of England has flagged concerns about opacity, unclear valuations and hidden leverage in the wider private credit market. Both The Pensions Regulator and the Financial Conduct Authority declined to comment when asked about LGPS-specific exposure, each referring inquiries to the other. Two named fund-level data points underline the practical risk: Hammersmith and Fulham exited a private credit fund that was subsequently liquidated, and Gloucestershire has indicated it would borrow rather than be forced into a fire sale of illiquid assets under stress.

What this article covers

• Does: Explain the 14 May 2026 Reuters analysis showing LGPS funds hold around £32bn in private and multi-asset credit, what those instruments are, why funds hold them, what the Bank of England has said about the sector’s risks, and what (if anything) it means for ordinary council pension members.
• Doesn’t: Cover the broader LGPS pooling reforms or the governance framework for who decides what gets invested. Those topics sit in LGPS six megafunds: which pool is your fund in and Councillors and LGPS investment decisions.
• If you need advice: Speak to a regulated financial adviser, or contact MoneyHelper for free, government-backed guidance.

A Reuters analysis of the annual reports of all 86 Local Government Pension Scheme funds in England and Wales, published on 14 May 2026, found that the £400bn scheme as a whole has accumulated over £32bn in private credit and multi-asset credit exposure. Almost half of LGPS funds now hold 10% or more of their assets in these instruments. London Borough of Lambeth’s pension fund is the highest, with around 26% of its assets in private debt and multi-asset credit combined. Average allocations across the scheme are 4.2% in private credit and 8.7% in multi-asset credit. The story has prompted Naomi Rovnick at the Financial Times to ask whether the LGPS is “over-exposed to dodgy private credit,” and several pension commentators to flag the question of whether members and councillors fully understand what they are holding. Here is what these instruments actually are, why funds hold them, what the Bank of England has said about the risks, and what it means in practice for the security of your accrued pension.

What private credit actually is

Private credit is lending to companies that does not go through the public bond market. When a large public company wants to borrow, it usually issues a bond, which is traded on regulated markets, rated by credit agencies, and reported on transparently. When a mid-sized private company wants to borrow, that route is often closed to it. The company is too small for a credit rating, the issuance costs are too high relative to the loan size, or the company wants to keep its terms private. Private credit fills that gap. A specialist lender (typically a fund, sometimes a bank) provides the loan directly, holds it on its books, and earns the interest plus any structuring fees.

For pension funds, private credit has been attractive over the last decade for three reasons. First, the yields have been higher than equivalent-quality public bonds, partly because the loans are illiquid (you cannot sell the loan as easily as a bond, so the lender demands more for that). Second, the loans are usually floating-rate, which means they reset with interest rates and so provide some protection if rates rise. Third, in a low-rate world, private credit looked like one of the few places where pension funds could earn the return assumption built into their funding plans without taking equity-style risk.

The two big trade-offs are liquidity and transparency. Private credit loans are not traded, so the fund cannot easily sell them if it needs cash quickly. Valuations are typically marked to model rather than to market, which means the value reported by the manager is an estimate based on a financial model, not a price observed in a recent transaction. In normal conditions this is fine. In a downturn, when private companies start to struggle and defaults rise, the gap between “book value” and “realisable value” can become uncomfortable.

Multi-asset credit, and why the categories blur

Multi-asset credit is a wrapper strategy. It combines several types of corporate and structured debt within a single fund managed by an asset manager. Typical holdings include investment-grade corporate bonds, high-yield (sub-investment-grade) bonds, leveraged loans (syndicated loans to private-equity-owned companies), emerging-market debt, and a slice of private credit. The exact mix varies by manager, and that is part of the point: the strategy gives the manager flexibility to move between debt sub-asset-classes as relative value changes.

For an LGPS fund, allocating to multi-asset credit usually means outsourcing the decision about which corner of the credit market to be in at any given time. The fund’s strategy statement might say “8% in multi-asset credit”, and the manager then decides what proportion of that goes into high-yield bonds versus leveraged loans versus private credit at any given moment.

The category boundary between “private credit” and “multi-asset credit” matters when you are reading the Reuters figures. The £32bn total combines a fund’s explicit private-credit allocation with the credit-fund holdings inside its multi-asset credit allocations. A fund reported as having “10% in multi-asset credit” may have, depending on the manager’s mix, anything from 1% to 5% of its total assets in private credit underneath that label. The reporting categories that LGPS funds use in their annual reports do not always line up cleanly with what is actually inside each holding, and that is part of the transparency concern the Bank of England has flagged.

What the Bank of England has said about the risks

The Bank of England’s Financial Policy Committee has flagged the private credit sector in its Financial Stability Reports through 2024 and 2025. The concerns it has set out, in plain English, are these.

• Valuation opacity. Private credit loans are not traded, so their values are estimated by the manager using internal models. If actual market conditions deteriorate, marked book values can lag the real position by months or quarters. The Bank’s concern is that some allocations may be reported at values that would not be achievable in a forced sale.
• Hidden leverage. A growing share of private credit is lent to companies that are themselves leveraged (often owned by private equity firms that have loaded the company with debt to finance the acquisition). When a private credit fund lends to a leveraged company, the loan has more debt sitting underneath it than the headline coverage ratio implies.
• Concentrated counterparties. A small number of very large asset managers (Blackstone, Apollo, Ares, KKR, and a few others) dominate the private credit market globally. If one of them ran into trouble, the consequences would ripple across the pension funds that have lent through their vehicles. This is what the Bank means when it talks about “interconnectedness”.
• Untested returns. Private credit’s reported returns have been good since the asset class became widely accessible to institutional investors after the 2008 financial crisis. But that has been a benign period for credit. The performance of private credit in a serious recession or default cycle has not yet been observed at the current scale of the market.

None of this means private credit is bad, or that LGPS funds should not hold it. The Bank’s job is to flag systemic risks, not to advise on portfolio construction. Most institutional allocators of private credit, including pension consultants advising LGPS funds, would say that a moderate allocation is reasonable for a long-term investor that does not need daily liquidity. The question the Reuters reporting raises is whether the allocations across the LGPS as a whole, taken together, are still in the “moderate” range or are starting to look concentrated.

What it means for your accrued pension

This is the part that matters most for ordinary LGPS members. The short answer is that your accrued pension is not directly affected by investment performance, good or bad. The longer answer has two layers.

First, the LGPS is a defined-benefit scheme. The pension you have built up is defined by your pensionable earnings, your years of service, and the accrual rate set in regulation (1/49th of pensionable earnings per year in the current scheme). It is not defined by what the fund’s assets do. If the fund’s private credit holdings underperform, the pension you have accrued does not shrink. The legal entitlement is the same.

Second, the fund’s assets are what backs that legal entitlement. If they underperform, that backing weakens, and the gap has to be filled somewhere. In the LGPS, the mechanism that fills the gap is the triennial valuation of the fund. Every three years, the fund’s actuary calculates whether the assets are sufficient to meet the projected pension payments, accounting for current investment expectations. If assets fall short, the actuary recommends an increase in the employer contribution rate, that is, the percentage of pensionable salary that the employing council or partner organisation pays into the fund alongside the member’s contributions.

The 2022 LGPS valuation found the scheme as a whole was around 107% funded, with an aggregate £22bn surplus. That is a comfortable position from which to enter the next valuation cycle (2025 data, results due in 2026), and it means there is real headroom to absorb the kind of mark-to-market hit you might expect if private credit assets had to be revalued downwards by, say, 10 to 15%. The headline £32bn in private and multi-asset credit, even on a punitive haircut assumption, is unlikely on its own to push the scheme as a whole into a deficit.

The picture varies fund by fund. Lambeth, with around 26% of its assets in private and multi-asset credit, is more exposed to that asset class than the LGPS average. Whether that translates into a meaningful problem at the next valuation depends on Lambeth’s funding level going into the valuation, the overall market conditions, and the realised performance of its private credit holdings. The scheme-wide surplus does not automatically protect any individual fund’s contribution rate.

What it means for council taxpayers

This is the secondary effect that does eventually touch ordinary people, including members and non-members. Council employer contributions to the LGPS come out of the council’s general fund, which is funded by council tax, business rates, central government grant, and other revenues. If a fund’s private credit holdings underperform and the actuary increases the employer contribution rate at the next valuation, the council has to find that money somewhere. In practice, that is usually a combination of reduced spending on other services, drawing on reserves, or raising council tax.

This is the channel through which LGPS investment performance translates into real-world impact for people who are not LGPS members. It is also the channel that explains why councillors and local political debate sometimes focus on the fund’s investment strategy: the local taxpayer is, indirectly, on the hook if things go badly. The flip side is that strong investment performance reduces employer contribution pressure and leaves more headroom for council services.

The transparency question the Reuters story raises is therefore not purely academic. If members, councillors, and council taxpayers cannot easily see what their fund holds in private credit and what assumptions are being made about its returns, then the public accountability of the investment strategy is weaker than it could be.

How to find out what your fund actually holds

Every LGPS administering authority publishes an annual report that sets out the fund’s investment holdings, broken down by asset class and by manager. These reports are public documents and are typically available on the administering authority’s pension fund website. The level of detail varies. Some funds publish the manager-by-manager breakdown of every holding above a threshold. Others publish only the high-level allocation by asset class.

The relevant documents to look for are:

• The fund’s Annual Report and Accounts, usually published around September each year. Look for the “investment assets” or “investments held” note, which lists the breakdown.
• The Investment Strategy Statement (ISS), which is a legal document under Regulation 7 of the LGPS Management and Investment of Funds Regulations 2016. It sets out the fund’s target asset allocation, including the planned exposure to private credit and other illiquid assets.
• The pensions committee minutes, which document the decisions the committee has taken about investment strategy. These are usually published on the administering authority’s main website under the committee meetings section.

You can find your administering authority via the directory at lgpsmember.org/contact-your-fund. The administering authority then has a separate pension fund website where the annual report and ISS are published.

Common questions

Pension Plain’s take

Two things can be true at the same time. The first is that a moderate allocation to private credit is a defensible institutional investment decision, and that LGPS funds doing this are following the same playbook used by every other large institutional investor over the last decade. The second is that £32bn across the scheme is no longer a niche allocation, the Bank of England’s transparency concerns are legitimate, and the public accountability of what is held by whom is weaker than it should be for a scheme funded ultimately by council taxpayers and used to pay the pensions of public servants.

The piece of news worth holding on to from the 14 May Reuters reporting is not that there is anything obviously wrong with the LGPS’s investment strategy. It is that the strategy has evolved to include sizeable exposure to an asset class whose valuations and risks are harder to scrutinise than the traded equities and bonds that used to dominate pension fund balance sheets. The fix for that is transparency, not necessarily a change of strategy. The annual reports of individual funds, the disclosures from the new pools as they reach full operating capability in 2026 and 2027, and the upcoming triennial valuation results are the documents to watch.

For ordinary members, the practical takeaway is reassuring: the pension you have built up is defined by your service, your salary, and the regulations, not by the fund’s investment returns. The conversation about private credit is real, but it is a conversation about how confidently the scheme can deliver on those defined benefits, and about who pays if assets underperform. It is not a conversation about whether your accrued pension is at risk.

Key official sources

• Reuters: Britain’s local council pensions bet big on shadow lending (14 May 2026). The primary source for the £32bn analysis and fund-by-fund breakdown.
• Bank of England: Financial Stability Reports. The Bank’s regular publication setting out systemic risks, including private credit concerns.
• LGPS Scheme Advisory Board. The body that publishes the scheme-level valuation results and policy guidance.
• lgpsmember.org/contact-your-fund (directory of administering authorities, where each fund’s annual report and ISS can be located).
• Pension Plain: LGPS guide: how the Local Government Pension Scheme works; LGPS six megafunds; Councillors and LGPS investment decisions.
• MoneyHelper (free, impartial pension guidance).

Fact-checked: 17 May 2026 · Last reviewed: 19 May 2026