Private debt remains attractive even under the Wtp

May 11, 2026

^{This report was originally written in Dutch. This is an English translation}

The private debt market has grown significantly worldwide. Dutch pension funds have also substantially increased their exposure. Will the asset class retain its appeal under the Wtp? And which risks are still often underestimated? During a Financial Investigator lunch webinar discussion led by Harry Geels, three experts discuss what pension funds need to bear in mind when considering investing in private debt.

By Esther Waal

The discussion begins with a search for definitions. It soon becomes clear that private debt is a broad concept. Mark Leeijen kicks things off: ‘It is debt securities that are not publicly traded and are less standardised than public bonds, which we use to finance medium-sized and large companies, as well as infrastructure projects and property.’ The sub-categories vary greatly in terms of risk. ‘There are the investment-grade categories, such as private placements and loans to housing associations and export credit agencies. As you move up the risk spectrum towards high yield, you arrive at direct lending, real estate debt and infrastructure debt. At the far end of the spectrum, you’ll find distressed debt and mezzanine loans, amongst others.’

Leeijen believes direct lending and private placements are the most interesting for pension funds, and these also constitute the largest market. ‘In terms of diversification, these subcategories offer the most added value to the portfolio, as pension funds often already invest in the equity segment of infrastructure and real estate.’

Robin Schouten responds: ‘A pension fund has a certain illiquidity budget, and I often see room in our clients’ return portfolios for some illiquidity and diversification.’ At the same time, he also identifies opportunities beyond direct lending, such as in infrastructure debt or emerging market debt.

According to the three experts, the appeal of private debt lies largely in the illiquidity premium. Leeijen: ‘If you compare direct lending with high yield, the spread as compensation for illiquidity and complexity is very interesting. Our current expectation for high yield is just over 2% and for direct lending 5.5%. So you are more than adequately compensated.’

Nevertheless, the panellists warn against underestimating the risks. Schouten first points to the standard risks of illiquid investments: transparency, valuation processes and the manager’s discretion. ‘But if you look a little deeper, the loan terms and control over them are very important aspects. And the relationship that the private equity sponsor has with the companies also makes a big difference. Many investors still have little to no insight into that.’

Kevin Simons turns the conversation to credit risks, which he believes are often interpreted too optimistically. ‘Default rates are said to have been fairly low in recent years, but what constitutes a “default”? Private loans are arranged privately. In such cases, it is in the lender’s interest to try to reach a mutual agreement in the event of payment difficulties, so that there is no default but, for example, a payment holiday. If such arrangements are made, they often do not fall under the traditional definition of a default, but they do cost returns. Sufficient countervailing power is therefore essential to be well-prepared when dealing with private debt.’

Direct lending and private placements offer the most added value in terms of diversification within the portfolio.

The private debt market is growing rapidly, and that is causing concern among regulators. ‘Is that justified?’, Harry Geels asks. Leeijen responds: ‘You have to ask whether the lending conditions have become a little too lenient and whether there is still sufficient compensation for the risk.

However, it is not so much about the allocation, but rather what lies beneath it. What type of loans are they? What collateral? That is how you maintain control and manage the risks.’

Schouten continues: ‘In Europe, spreads have fallen slightly, but not as much as in the US. It also depends very much on the segment. For companies with a turnover of more than 100 million, larger club deals are being done where it is harder to negotiate favourable terms, as those companies often have many other financing options. In the segment comprising somewhat smaller companies, more favourable terms can be secured for investors. ’

Under the new pension system, private debt remains attractive according to all panel participants, as both diversification and returns remain important. Moreover, the removal of VEV restrictions creates scope. Simons even expects the category to become even more attractive.

In the segment comprising somewhat smaller companies, more favourable terms can be secured for investors.

However, timing is crucial. According to Simons, anyone who only starts considering private debt after the transition date is already behind. ‘Start thinking about the post-transition portfolio at least six months before the transition date. A selection process for private markets can easily take three to five months.’

Geels asks how pension funds should deal with illiquidity under the Wtp. According to Leeijen, a core of liquid assets is essential. ‘Then, typically, 30% in illiquid investments is possible, depending on the size of your portfolio, your member base and your cash flows.’ He points out that cash flows also exist in private debt, such as repayments and interest payments. This allows the allocation to be steered to some extent, which is a difference compared to, for example, private equity.

Simons also sees opportunities to create liquidity if necessary. He advises pension funds to work with ranges. ‘Ensure that, in a downturn, due to lower volatility, you do not suddenly have a very high allocation to private debt, which you then have to reduce at the worst possible moment.’

Schouten adds that a 30% allocation is not universally applicable. ‘30% may be suitable for a generic pension fund, but we have also seen pension funds where that was too high. Robustness analyses show whether rebalancing remains possible in stress scenarios.’

Schouten cites investors’ bargaining power with managers as another point of attention for pension funds, not only for negotiations on fees but also on terms and conditions. ‘You need to have a firm grasp of the loan documentation and capital deployment.’

Private debt is often presented as an impact category, notes Geels. ‘But why, exactly?’ Leeijen points to the influence investors have on financing terms. ‘You can set impact targets in covenants. The interest rate can also be linked to the impact achieved.’ ‘But,’ Schouten qualifies, ‘not every sub-segment is equally suitable. As far as I’m concerned, direct lending isn’t necessarily the place where you make the most impact. With infrastructure debt and EMD, you’re really contributing to something new.’

Leeijen does, however, see sufficient opportunities in direct lending. ‘We have a preference for companies whose products directly contribute to a sustainable world. That allows you to achieve far greater impact than companies that merely make their processes more sustainable.’

Simons emphasises the need for reliable data. ‘You’re very much under the microscope with impact investing, so you have to pay close attention to ensure that what is claimed is reliable, measurable and realistic.’ He observes that impact due diligence is increasingly being integrated into the selection process.

The panellists expect the growth in private debt to continue thanks to the attractive spread. Leeijen concludes: ‘There are pension funds that, as they transition to the new pension system, are recalibrating their investment policies, but also funds that wish to implement impact investing. In that case, it is certainly also worth considering private debt.’
 

Read the full report in Financial Investigator magazine