Private Credit in PruFund: Perspective Beyond the Headlines

Diversification Beyond Public Markets

As PruFund investors, clients benefit from exposure to a broad range of asset classes - some that are not typically accessible to retail investors. This includes Real Estate, Private Equity, Infrastructure and Private Credit, collectively referred to as Private Markets.

PruFund’s Private Markets exposure is well diversified, and plays an important role by helping to:

• diversify beyond equities and fixed income, reducing reliance on public markets alone.
• provide access to long term differentiated income streams.
• support a smoother investment journey.

This becomes particularly relevant during periods of uncertainty, when inflation risks increase or when equities and bonds begin to behave in a similar fashion. In such environments, traditional multi asset approaches may not provide the same level of diversification they once did. Having asset classes that behave differently can therefore be vital in supporting more resilient outcomes for clients.

PruFund’s exposure to Private Markets has been built carefully over time, through high quality investments and managed by specialist teams with decades of experience.

Recent Private Credit headlines – context matters

Recent media coverage has raised questions about Private Credit markets following a small number of high profile corporate defaults. We recognise that this can raise understandable concerns for investors who are aware that PruFund has some exposure to the asset class.

It is, however, important to distinguish isolated incidents from broader market conditions.

Private Credit remains a diverse asset class, and current stresses are concentrated in specific areas - particularly in parts of the US direct lending market, where strong capital inflows over recent years have increased competition and, in some cases, weakened underwriting standards.

By contrast, default rates remain low by historical standards and well below levels typically associated with periods of severe market stress. Whilst we are moving through a stage of the credit cycle where default rates could rise gradually, any increase would represent a return towards more normal levels, rather than evidence of a systemic issue across Private Credit markets.

PruFund’s Private Credit exposure – measured and well-managed

Within PruFund Growth, exposure to Private Credit is relatively small, at around 2% of the overall portfolio.

In addition:

• The portfolio has a strong European and UK focus, where Private Credit has generally been more conservatively structured and has shown greater resilience than some more challenged areas of the US market.
• There is a focus on senior and secured lending, supported by more disciplined underwriting standards.
• Manager quality is essential. PruFund benefits from the scale and expertise of M&G’s Private Markets and Credit teams, who have deep experience across credit cycles.
• The exposure is actively managed, allowing portfolios to respond as conditions change.

This structure is designed to balance opportunity with resilience and to ensure risks are well understood and monitored.

Robust, multi-layered oversight

This approach is complemented by strong and well-established oversight at multiple levels:

• PruFund’s underlying managers are subject to regular monitoring and challenge.
• Signs of credit deterioration are identified early and actively managed.
• Specialist restructuring expertise is available to help protect value where required.
• Our Life Investment Office provides independent oversight through regular reviews and deep-dive assessments with managers and positions.

Together, this ensures risks are well understood, closely monitored and actively managed throughout the credit cycle.

Overall conclusion

While we understand that investors may be nervous when reading headlines, current conditions do not suggest widespread stress across Private Credit markets. And within PruFund, exposure to Private Credit is diversified and expertly actively managed, with a clear focus on quality and resilience.

Defaults will inevitably rise as the cycle matures, but given the structure of the portfolio, conservative credit selection and strong oversight from both M&G and the Life Investment Office, we believe PruFund is well positioned to navigate a more challenging environment.