UK pension giants most exposed in Europe to shadow banking risks
A new report from S&P Global warns that UK pension funds are the most exposed in Europe to risky shadow banking activities, with twice as much money tied up in private credit compared to European counterparts. Legal & General, Standard Life, and Just Group have over 10% of their funds in illiquid private credit, versus 5% for European funds. UK pension insurers allocate 8.8% to private credit, while European insurers allocate 4% and re-insurers just 1%. The warning follows significant investor losses from collapses of US shadow banks Tricolor and First Brands, and UK firm Market Financial Solutions. Bank of England Governor Andrew Bailey raised alarms in May about pension funds' entanglement with private credit. UK pension funds have grown through bulk purchase annuity deals, and recent acquisitions by Brookfield and Apollo have fueled concerns about increased allocations to private capital, mirroring US trends. Private credit offers higher returns but carries risks due to lack of transparency and illiquidity.
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