Anders Ellegaard has served as Head of Fixed Income at Industriens Pension for nearly six years, overseeing the pension fund’s fixed-income portfolio spanning traditional sovereign and mortgage bonds to high-yield and emerging market debt. Yet, it is the growing private debt allocation that now occupies most of Ellegaard’s focus. Since joining Industriens Pension in 2017 to develop its private debt program, he has overseen its expansion from 1-2 percent of total assets to around eight percent today.

“Private debt is the last major area within fixed income, and it’s where I spend most of my time,” says Ellegaard. Over the years, he has steadily shifted more of the fixed-income allocation toward private credit. “The build-up of private credit has come from a reduction in liquid credit holdings, essentially reallocating capital to areas where we see better value compared to liquid high yield and investment-grade markets.”

“The build-up of private credit has come from a reduction in liquid credit holdings, essentially reallocating capital to areas where we see better value compared to liquid high yield and investment-grade markets.”

Anders Ellegaard, Head of Fixed Income at Industriens Pension.

Industriens Pension splits its private credit exposure into low- and higher-risk segments, mirroring the pension fund’s two underlying portfolios: “offensive” and “defensive.” Member allocations depend on age: members under 51 have all their savings in the higher-risk offensive portfolio, which gradually shifts toward the defensive one as they approach retirement.

“The split between low- and higher-risk private credit fits well with our member base,” says Ellegaard. “When you’re younger, you can tolerate more risk and therefore have a higher allocation to the higher-risk bucket. As you get closer to retirement, you slowly rotate more of that exposure into the low-risk segment.”

Defining Risk and Building Blocks

Explaining how sub-strategies are assigned, Ellegaard notes that “the higher-risk segment has grown out of high-yield bonds, and the low-risk from investment grade.” At Industriens Pension, the distinction between higher- and low-risk private credit primarily revolves around the risk of loss. “If we believe there’s a risk of actually losing money, we place it in the higher risk-risk bucket,” he says. “In the low-risk segment, we require a diversified exposure to floating-rate assets issued around par, where you’d need an extreme situation before there’s any risk of loss.”

The higher-risk exposure is predominantly built around performing direct lending, special situation lending, and traditional distressed strategies. Special situations typically involve providing new financing to companies undergoing a transition or facing temporary liquidity needs, but where solvency remains sound. “If things don’t pan out as expected, the managers we work with should have a clear plan for potential downside scenarios,” says Ellegaard. “If necessary, they can take control of the company, become the owner with a significantly lower debt level by converting part or all of the debt to equity, stabilize operations, and run it as a private equity investment until exit, in that way preventing any loss of capital.”

The final major building block is traditional distressed investing. “That involves buying stressed or distressed assets in the market, either to be pay back at par in a restructuring or sold at with a profit after a stress or with the intention of taking them over,” says Ellegaard. Around this core, Industriens Pension also invests in “various add-ons and smaller strategies that, at different points in time, offer attractive risk-return dynamics or benefit from favorable supply-demand conditions for capital,” he adds. As the private debt program has matured – now encompassing around 45 funds – the allocation has naturally diversified, though the core focus remains on performing debt.

On the low-risk side, Industriens Pension primarily invests in senior, real estate-backed loans, broadly diversified corporate credit exposures with significantly lower risk than those in the higher-risk segment, and various fund financing structures. Given the development in the savings in Industriens Pension’s member base, roughly 75-80 percent of the private credit portfolio currently sits in higher risk, with the remainder in low risk. “Ten years from now, we should have a higher allocation to the low-risk bucket as more members with higher pension savings move closer to retirement.”

“Where banks are pulling back, and you can find a manager with deep experience and a long-standing understanding of the market, where there aren’t too many intermediaries trying to make money in between. That space is interesting.”

Anders Ellegaard, Head of Fixed Income at Industriens Pension.

Ellegaard sees particularly attractive opportunities in the asset-backed space. “Asset-backed is also an extremely broad term,” he notes. “But where banks are pulling back, and you can find a manager with deep experience and a long-standing understanding of the market, where there aren’t too many intermediaries trying to make money in between. That space is interesting.”

He also highlights GP financing and NAV financing as compelling areas. “NAV financing and GP financing are especially interesting right now, partly because of the challenges private equity firms face in raising capital,” points out Ellegaard. These areas are appealing since banks are no longer meaningfully involved, “they simply can’t scale these businesses.”

Manager Selection: Size, Structure, and Substance

As with many Nordic peers, Industriens Pension avoids the very largest global private credit managers while favoring those with institutional scale. “We stay away from the mega-managers with their own balance sheets and multiple overlapping strategies where assets can be shifted between funds,” explains Ellegaard. “But we do like managers that are part of large organizations, since that gives them influence with sponsors and better access to competitive deals, this could be managers with a strong private equity fund-of-fund programs. Very small managers often don’t have that.”

Still, smaller niche managers can be attractive if they bring something unique to the table. “If a small manager has a clear track record and a real reason to exist, maybe they’re specialized in an off-market credit segment, we can get comfortable with that,” he says.

“We’re looking for managers who genuinely understand credit, know their position in the financial system, and have a strong focus on downside protection, knowing exactly what to do if something goes wrong.”

Anders Ellegaard, Head of Fixed Income at Industriens Pension.

The selection process is hands-on. “We meet every manager that comes through Copenhagen, and when we’re in London or New York, we meet the interesting managers again in their home turf,” says Ellegaard. “It’s usually pretty quick to tell if a manager really understands credit and their reason to exist,” he says. When Industriens Pension identifies a promising manager, the team follows them over time, taking several meetings and building a relationship before initiating formal due diligence.

“We’re looking for managers who genuinely understand credit, know their position in the financial system, and have a strong focus on downside protection, knowing exactly what to do if something goes wrong.” Another crucial factor is alignment of interest. “We want to see that carry is distributed throughout the organization, not just kept at the senior level,” says Ellegaard. “That’s how you attract and retain the best investment talent.”

Looking Ahead

Ellegaard sees two major trends shaping the private credit market: continued structural growth and the rise of evergreen fund formats, either with other institutional investors or as fund of ones. “We expect the private credit market to keep growing as institutional investors continue to understand and allocate to the asset class,” he says. “At the same time, more and more evergreen structures are being introduced, especially in performing direct lending, where there’s a steady deployment of new capital.”

“We expect the private credit market to keep growing as institutional investors continue to understand and allocate to the asset class.”

Anders Ellegaard, Head of Fixed Income at Industriens Pension.

While such structures aren’t suitable for all sub-strategies, as “distressed credit, for instance, is very timing-dependent,” Ellegaard believes evergreen funds make sense for performing direct lending. “If structured properly, they allow investors to remain fully invested without the ramp-up and run-off periods you get with closed-end funds,” he explains.

“The important thing is that liquidity and redemptions are handled in the right way,” he emphasizes. “We don’t want to be forced sellers at any point. But if the structure allows an orderly run-off, it benefits both managers and investors. It’s simply a smarter, more flexible way to manage private credit exposure over time.”