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The Role of Private Credit in Today’s Corporate Defined Benefit Portfolio

  • Strategy insight

April 23, 2026 | 4 min read

Bill Cole,
CFA, CAIA

Principal

James Dembinski

Principal

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Corporate defined benefit plans are entering a period of relative strength. Many plans remain well funded, or even in surplus. At the same time, de‑risking strategies have steadily shifted portfolios toward long‑duration public fixed income. For well‑funded plans, this sheds light on an underlying challenge that is most acute for heavily de-risked portfolios: traditional fixed income often does not keep up with year over year changes in the plan’s liability.
This return gap of about 50-100 basis points per year has historically been offset by return‑seeking assets such as equities or private equity.1 But as plans de‑risk and reduce those allocations, they are increasingly reliant on their liability‑hedging assets to maintain funded status. The question facing many CIOs and investment committees is how to re-evaluate portfolio construction in their return seeking and liability hedging portfolios to maintain their current funded status, without materially increasing funded‑status volatility.
We believe that private credit can help plan sponsors achieve this objective.

Expanding the liability hedging toolkit

Most liability‑hedging portfolios are built from long‑duration investment grade credit and Treasuries. These assets can match the duration and credit sensitivity of the liability well but often still lag liability growth. Plans that are no longer receiving cash contributions, or that maintain smaller return‑seeking allocations, feel this challenge most acutely.

This is where private credit can play a differentiated role. Senior direct lending strategies typically offer a meaningful spread advantage over public credit, while maintaining a similar cash‑flow profile. Seasoned loans accessed through credit secondaries add another layer of appeal, as they have already passed through the period when the majority of defaults tend to occur. For plans operating with tight risk budgets, this combination of higher yield with a cash flow profile aligned with shorter duration public credit strategies is worth careful consideration.

Private credit: A liability hedging enhancer

For plans that are already heavily de‑risked, the bar for making changes is high. Any new allocation must slot naturally into an established liability‑hedging framework.

In practice, this can be done. Substituting a portion of intermediate public investment grade credit with senior private credit can lift portfolio yield meaningfully. For example, the plan below has an 11-year liability duration and is using a combination of investment grade credit and treasuries to hit the duration and target of the liability. This portfolio is yielding 5% in today’s environment. By allocating to senior private credit, in place of shorter duration public credit, and adjusting the size and duration of the portfolio’s Treasury allocation the yield of the portfolio rises 80 basis points to 5.8%, while maintaining an 11‑year duration target.2 This incremental yield is enough to compensate for the margin by which a liability hedging portfolio typically lags the year over year changes in the liability.

Measuring the impact of adding private credit to a LDI portfolio

Traditional LDI portfolio
(11-year duration); 5.0% Yield

LDI portfolio with private credit
(11-year duration); 5.8% Yield

Source: Bloomberg data as of February 27, 2026, including index data from Bloomberg Long and Intermediate Credit Index and Bloomberg Long and Intermediate Treasury Index. Direct lending proxy assumes 9.1% overall yield based on prevailing market yields. Past performance is not a reliable indicator of future results.

We believe that credit secondaries can be especially attractive here. They provide exposure to seasoned, cash‑flowing loans with known performance histories and shorter remaining durations. That combination can offer qualities that align well with the needs of de‑risked pension plans: higher income, lower default risk, and a more predictable liquidity profile.

Supporting return‑seeking allocations while preserving optionality

Plans that are not yet fully de‑risked face a related but distinct challenge. Their return‑seeking portfolios—typically public equities and private equity—must generate returns that exceed liability growth, while still maintaining flexibility to adjust allocations over time as they gradually de-risk and re-allocate from return seeking strategies to liability hedging strategies.  As many plans look to wind down legacy private equity allocations, we believe there are opportunities to capture an illiquidity premium in the private credit market in a manner that distributes regular cash flows, contractual liquidity and shorter fund terms. 

We believe that private credit secondaries fit naturally into this allocation. They offer attractive risk‑adjusted returns, often in the low double‑digits, with more predictable liquidity and shorter fund lives than primary private equity commitments. Because secondary investments invest in seasoned credit portfolios, plan sponsors can mitigate the J-curve by deploying capital quickly, while receiving portfolio cash flows immediately to either fund benefit payments or to rebalance back to their strategic targets.  This allows plans to keep the door open for future de‑risking decisions.

As you can see in the charts below, introducing a 25% allocation to private credit, taken proportionally from a public and private equity allocation, increases the risk adjusted return of this allocation, while introducing greater predictability of cash flows and a shorter duration of the private capital allocation.

Maintaining competitive returns while preserving optionality

Average term of private capital allocation (years)

Source: Preqin indices as of September 30, 2025; Portfolio 1: represented by 30% Private Equity and 70% MSCI World; Portfolio 2: represented by 25% Private Debt; 22% Private Equity; 53% MSCI World. Risk is defined as standard deviation calculated using quarterly values. Average duration measures the private allocations of Portfolios 1 and 2 only. Assumes typical investment holding period for private equity (12 years) and private credit (6 years) and uses a weighted average of Portfolio 1 and 2 allocations.

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The case for acting now

With funded statuses above 100% for the average plan, return seeking allocations shrinking, and lower base rates underpinning the public fixed income markets, today’s environment offers a timely opening for corporate pensions to revisit portfolio construction. Whether through direct lending or secondaries, private credit provides a versatile set of potential tools that can help plans:

  • Increase yield in a controlled, liability aware manner
  • Preserve and strengthen recent funded status improvements
  • Add diversification beyond traditional public credit
  • Enhance liquidity and the predictability of cash flows, relative to other private market strategies
  • Maintain optionality as allocations continue to evolve

For plans aiming to protect their current position while preparing for the next stage of derisking, incorporating private credit thoughtfully into both the liability hedging and return seeking allocations can offer a meaningful advantage.

Footnotes
  1. Milliman 100 Corporate Pension Funding Study (2024–2025)
  2. Source: Bloomberg data as of February 27, 2026, including index data from Bloomberg Long and Intermediate Credit Index and Bloomberg Long and Intermediate Treasury Index. Direct lending proxy assumes 9.1% overall yield based on prevailing market yields. Past performance is not a reliable indicator of future results.
Disclosure

HarbourVest Partners, LLC (“HarbourVest”) is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes; the information should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy.  In addition, the information contained in this document (i) may not be relied upon by any current or prospective investor and (ii) has not been prepared for marketing purposes. In all cases, interested parties should conduct their own investigation and analysis of any information set forth herein and consult with their own advisors. HarbourVest has not acted in any investment advisory, brokerage or similar capacity by virtue of supplying this information.  The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. The information is subject to change without notice and HarbourVest has no obligation to update you.  There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.     

 

Nothing herein should be construed as a solicitation, offer, recommendation, representation of suitability, legal advice, tax advice, or endorsement of any security or investment and should not be relied upon by you in evaluating the merits of investing in HarbourVest funds or in any other investment decision.

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Professional Investor Definition

“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:

(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;

(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;

(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;

(e) any scheme which-

(i) is a collective investment scheme authorised under section 104 of the SFO; or

(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,

or any person by whom any such scheme is operated;

(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;

(g) any scheme which-

(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or

(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,

or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;

(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;

(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-

(i) a wholly owned subsidiary of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(ii) a holding company which holds all the issued share capital of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or

(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or

(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.

The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:

(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-

(i) as stated in the most recent audited financial statement prepared-

(A) in respect of the trust corporation; and

(B) within 16 months before the relevant date;

(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-

(A) in respect of the trust or any of the trust; and

(B) within 16 months before the relevant date; or

(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-

(A) in respect of the trust or any of the trusts; and

(B) within 12 months before the relevant date;

(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-

(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or

(ii)  as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;

(m) any corporation or partnership having-

(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or

(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-

(iii) the most recent audited financial statement prepared-

(A) in respect of the corporation or partnership (as the case may be); and

(B) within 16 months before the relevant date; or

(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and

(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-

(i) a trust corporation that falls within the description in paragraph (k);

(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);

(iii) a corporation that falls within the description in paragraph (m);

(iv) a partnership that falls within the description in paragraph (m).

For the purposes of paragraphs (k) to (n) above:

  • “relevant date” means the date on which the advertisement, invitation or document (made in respect of securities or structured products or interests in any collective investment scheme, which is intended to be disposed of only to professional investors), is issued, or possessed for the purposes of issue;
  • “custodian” means (i) a corporation whose principal business is to act as a securities custodian, or (ii) an authorised financial institution under the Banking Ordinance (Cap. 155 of the Laws of Hong Kong); an overseas bank; a corporation licensed under the SFO; or an overseas financial intermediary, whose business includes acting as a custodian; and
  • “portfolio” means a portfolio comprising any of the following (i) securities; (ii) certificates of deposit issued by an authorised financial institution under the Banking Ordinance (Cap, 155 of the Laws of Hong Kong) or an overseas bank; and (iii) except for trust corporations, cash held by a custodian.

Institutional Investor / Accredited Investor Definition

An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(a) the Singapore Government;

(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;

(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —

(i) to manage its own funds;

(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or

(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;

(d) any entity —

(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and

(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);

(e) a bank that is licensed under the Banking Act 1970;

(f) a merchant bank that is licensed under the Banking Act 1970;

(g) a finance company that is licensed under the Finance Companies Act 1967;

(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;

(i) a company licensed under the Trust Companies Act 2005;

(j) a holder of a capital markets services licence;

(k) an approved exchange;

(l) a recognised market operator;

(m) an approved clearing house;

(n) a recognised clearing house;

(o) a licensed trade repository;

(p) a licensed foreign trade repository;

(q) an approved holding company;

(r) a Depository as defined in section 81SF of the SFA;

(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;

(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;

(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;

(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;

(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;

(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;

(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;

(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.

An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(i)  an individual —

(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —

(BA) a deposit as defined in section 4B of the Banking Act 1970;

(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or

(BC) any other asset as may be prescribed by regulations made under section 341; or

(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(ii)  a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —

(A) the most recent audited balance sheet of the corporation; or

(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;

(iii) A trustee of a trust which all the beneficiaries are accredited investors; or

(iv) A trustee of a trust which the subject matter exceeds S$10 million; or

(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or

(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or

(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.

Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).