The California Public Employees’ Retirement System may jump into private debt as the pension giant reworks strategies to achieve its return targets.

Calpers, with $397 billion as of Jan. 7, has resisted the burgeoning asset class even as other pension and endowment funds are drawn to returns that can run as high as 10%. Change may be afoot as Chief Investment Officer Ben Meng enters his second year managing the country’s largest public pension fund.

Meng discussed the rapid growth of private debt investing at a Dec. 16 board meeting in Sacramento, saying it’s an area “we overlooked in the past, particularly given the changes in regulation after the global financial crisis.” Though it’s not currently in the portfolio, he said, “We think it should be.”

Post-crisis regulations intended to fortify banks crimped their ability to lend to small and mid-size companies, opening a window for private credit funds to enter. The funds, in turn, have extracted premiums that can be in excess of 5 percentage points higher than competing public debt.

Yield-searching investors have noticed, pouring capital into strategies such as direct lending. Private credit has grown to more than $800 billion of assets under management from less than $400 billion in 2012, according to research firm Preqin Ltd.

Arizona’s State Retirement System is among those looking to increase its exposure to direct lending. And the number of U.S. public pensions active in private credit has climbed to 281 from 186 in 2015, according to Preqin’s data.

The average public pension is about 70% funded and has returned about 5.6% a year since 2000, Von Hughes of asset manager PAAMCO Prisma told Calpers. Assumed rates of return are typically closer to 8%, however.

“So long-term public pension liabilities are increasing and public pensions are turning to private markets to help close that gap,” Hughes said.