SH Pension, a Swedish occupational pension company owned by its customers, was established in 1946 and specializes in providing pension solutions for business owners and their employees. SH Pension has drawn increased attention this summer after posting strong returns driven by its substantial allocation to alternatives. Spanning private equity, private credit, and infrastructure, these assets now account for 40 percent of the traditional pension insurance portfolio. With newly appointed CIO Kenneth Norling leading investment activities, alternatives remain a core focus, though the exposure is expected to gradually ease toward the strategic allocation target of 30 percent as distributions from private equity materialize.

“We have quite a meaningful allocation to alternatives, namely private equity, private credit, and infrastructure – roughly 40 percent of the portfolio at the moment,” confirms Norling. “Compared to competitors and other market participants, it’s a strong allocation, and we want it to continue being a cornerstone of the portfolio,” he emphasizes. The allocation will gradually decline over time, primarily as private equity distributions are realized, settling around what Norling calls “our strategic long-term allocation to alternatives” of roughly 30 percent.

“We have quite a meaningful allocation to alternatives, namely private equity, private credit, and infrastructure – roughly 40 percent of the portfolio at the moment.”

Kenneth Norling, CIO at SH Pension.

SH Pension has been investing in alternative assets for several years, with a notable increase in focus since 2022. “We have steadily ramped up this allocation over the last couple of years, and we want it to be meaningful,” notes Norling. The strategy has already borne fruit, with alternatives posting a 4.3 percent return in the first half of 2025, serving as the primary return driver in the portfolio. “It is gratifying to see that our emphasis on alternative investments is paying off.”

Balancing Diversification and Returns

While each individual asset class has its own role in a portfolio, SH Pension’s alternatives allocation serves both diversification and return-enhancement purposes. “It’s an illiquid asset class that is naturally less correlated with liquid markets, but also a return-enhancement compared to public exposures,” says Norling. “All play a different role within the portfolio: private equity is a bit more aggressive on the risk-return scale, while private credit is more on the lower end of the risk scale, and so is our core infrastructure exposure.”

Private credit, in particular, makes up about 15 percent of SH Pension’s portfolio. “If you compare investment-grade bonds with private credit, the return target is obviously higher on the private credit side,” Norling explains. As a long-term investor, SH Pension aims to capture the illiquidity premium in the market. “That’s why we focus on the alternative space, including private credit,” he adds.

Structuring Private Credit Exposure

About two-thirds of SH Pension’s private credit exposure is invested in senior private debt, primarily senior loan structures, while the remaining third is allocated to more opportunistic strategies. “Roughly 65 to 70 percent of the portfolio is in senior debt, which is relatively low risk. Then we have some return enhancement through the more opportunistic side of private credit,” says Norling. This latter segment includes specialty finance and other credit opportunities.

“Roughly 65 to 70 percent of the portfolio is in senior debt, which is relatively low risk. Then we have some return enhancement through the more opportunistic side of private credit.”

Kenneth Norling, CIO at SH Pension.

SH Pension seeks to maintain this split at a strategic level, rarely making tactical reallocations. “We will not move across that spectrum. We want private credit, namely senior direct lending, to remain a core part of the portfolio. We aim for both yield pickup and diversification, but we don’t want to use it as leverage on credit exposures,” explains Norling. “We may pursue some opportunistic credit strategies where we see clear benefits, but it should not be speculative.”

With SH Pension being a lean organization and limited in-house resources for due diligence, the pension company partners with Mercer to support manager selection. “We work with them as our partner. We use their scale, knowledge, and capabilities to screen the market,” says Norling. “With our organization, it’s difficult to build a diversified private markets program on our own, so we leverage their expertise to help us construct it.”

“There are a lot of mega funds being raised right now, and that’s not the space we want to be in.”

Kenneth Norling, CIO at SH Pension.

Describing the type of managers SH Pension invests in, Norling says the pension company focuses on the middle-market segment for senior private debt. “There are a lot of mega funds being raised right now, and that’s not the space we want to be in,” he explains. “For specialty finance and other credit opportunities, we can work with niche managers who bring expertise different from core private markets managers,” he adds. “We use both. But for the core portion, where we aim to stay in the middle market, that’s where all our managers focus.”

SH Pension also seeks to maintain a well-diversified exposure within private credit, even though direct lending forms the core of its allocation. “A significant portion goes into direct lending and senior debt, which is where we want our core allocation to be,” reiterates Norling. “But we aim to diversify across vintages and managers to reduce systematic risk through that process,” he adds. The pension company also spreads its exposure geographically, currently maintaining an even split between Europe and the United States.

Market Trends and Strategic Outlook

Norling points to a key trend in private credit: the rapid inflow of capital, which he believes will inevitably attract regulatory scrutiny. “The amount of money being poured into private credit right now is substantial. Growth was strong in the U.S., but on a relative basis, Europe is growing even faster. We’re not at the same level yet, but in terms of growth, it’s quicker in Europe than in the U.S.,” he notes. “With this growth comes responsibility; regulators are going to be on this.”

He welcomes the increased oversight. “From our point of view, given how we leverage Mercer and rigorously scrutinize every manager, we actually welcome regulation. It’s good for the market that things are regulated and transparent,” Norling says.

“The amount of money being poured into private credit right now is substantial. With this growth comes responsibility; regulators are going to be on this.”

Kenneth Norling, CIO at SH Pension.

Another trend he observes is the sheer volume of capital being raised in private credit that puts downward pressure on yield spreads. “You already see it in some pockets of the market. Yields are coming down, especially within the senior space,” says Norling. The concern, he adds, is that an oversupply of capital could weaken covenants and increase credit risk. “You can talk about credit quality. Will loans be given to just anyone?”

Even so, Norling emphasizes that private credit will continue to play a critical role in financial intermediation. “Private credit is very important for funding companies that may not be large enough for the public markets or have the capacity to go to banks.”

Looking ahead, SH Pension plans to maintain a meaningful allocation to alternatives, including private credit. “That’s something we want to have as a competitive factor against our peers,” concludes Norling. “We will continue to rely on this strategy going forward, and we believe it will remain a competitive advantage. Right now, it’s about continuing the work we’ve done over the last three or four years and leveraging it going forward, to provide our customers with robust risk-adjusted returns.”