Private credit is maturing—and facing new pressures and uncertainties. In 2025, the asset class continued to navigate a multiyear transition, advancing from its earlier, relatively simpler beginnings as a sector dominated by leveraged corporate lending toward a more complex ecosystem of diverse strategies, vehicle structures, and capital pools. It’s growing, but not as fast. And it’s facing, potentially, the most challenging performance environment it has yet experienced, with a new set of cyclical and structural risks.
Future outcomes remain unclear and could vary significantly. Leading metrics in 2025 reflect this lack of equilibrium. Dealmakers sustained near-record origination volumes in 2025, but did fewer and larger deals amid intensifying competition and tightening spreads. Strategies beyond direct lending—most notably asset-backed finance and credit secondaries—scaled rapidly, absorbing capital that is seeking diversification away from a compressed core market. Fundraising proved resilient, though its composition continued to evolve: Wealth and insurance capital accounted for a rising share of inflows across a more diverse set of vehicles, reshaping the deployment cadence and liability profile of the asset class.
Yet challenges seem to be mounting. A series of defaults and losses in leveraged credit have grabbed headlines. Public business development company (BDC) share prices traded down to levels well below net asset value (NAV). Liquidity concerns emerged for many semiliquid vehicles. And in early 2026, rising apprehension over AI and its potential to disrupt the software industry reached new heights. These developments have increased scrutiny on credit quality and managers’ approach to due diligence, raising questions not only about the risk–return proposition of the asset class but also about the interlinkages with the broader financial system.
While this chapter examines trends and emerging sectoral developments that may affect private credit’s prospects in the coming year (and beyond), our review here focuses primarily on what actually happened in 2025. In particular, we examine the asset class from the perspective of three key groups: dealmakers, fundraisers, and limited partners (LPs). We also examine emerging opportunities and highlight capabilities that are enabling leaders to gain and sustain competitive advantage.
Dealmakers: A borrowers’ market
For dealmakers, 2025 represented a continuation of many of the prior year’s trends. Direct lending volumes held near historic highs, even as deal counts slipped. An influx of capital and higher deployment expectations furthered a realignment of lender and borrower relationships and terms. As deployable deal inventory tightened against a growing capital base, intensifying competition put meaningful pressure on the characteristics of new issuances.
Dealmaking retrenches
Comprehensive data on private credit deal volumes across strategies and geographies is limited by the opaque nature of activity in the sector. Even so, the segment with the clearest disclosure—direct lending—suggests the market’s direction. Direct lending volumes in the United States moderated in 2025, with estimated volume declining by approximately 10 percent and deal count declining by about 16 percent (Exhibit 1).1 Activity nevertheless remained well above pre-2024 levels, underscoring that the market modestly dipped from elevated levels rather than precipitously fell.
Leveraged buyout (LBO) financings rose to $81 billion in 2025 from $73 billion in 2024, the highest level on record, even as LBO deal count declined to 214 (from 248).2 In other words, buyout financing grew through larger but fewer deals, in line with the broader recovery and direction in private equity (PE) activity. This increase was more than offset by a decline in non-LBO activity, including refinancings and recapitalizations, which slipped by nearly 20 percent from the prior year.3 That said, volume remained substantially elevated relative to pre-2024 levels as borrowers sought to take advantage of better market terms.
The scale of the shift toward larger deals is striking: Average LBO deal size for direct lending, for example, rose by 29 percent, reaching approximately $380 million (compared with about $295 million in 2024 and $200 million in 2020).4 This trend is also evident in the €6.5 billion unitranche refinancing for Norwegian online classifieds group, Adevinta—the largest direct lending deal on record.5 Deals of that magnitude epitomize the ongoing up-market migration of the strategy. This capability expands the addressable market for direct lending but also places it into more frequent direct competition with providers of syndicated and public credit.
Competition intensifies
While deal activity retrenched modestly, competition for deals intensified. Closed-end direct lending dry powder was approximately $500 billion as of the first half of 2025—near all-time highs—underscoring the scale of capital competing for a finite set of deals. This competitive dynamic is further amplified by the growth of semiliquid private credit vehicles. Because these vehicles raise capital continuously (instead of calling capital as needed), managers are under greater pressure to deploy rapidly to begin generating yield.
Competition from banks and the broadly syndicated loan (BSL) market also sharpened. Traditional lenders are increasingly competing not only as facilitators of syndicated debt but as direct principals. For example, J.P. Morgan carved out a $50 billion sleeve of its own balance sheet to originate private-credit-style loans in a bid to compete directly with nonbank managers on speed, certainty of execution, and hold size.6 Moreover, new BSL issuances remained near record highs,7 and refinancing flows between the two markets approached near-parity. Approximately $37 billion of BSL loans refinanced into direct lending, while $34 billion of direct lending loans moved in the other direction.8 That marks a clear break from prior years, when flows were largely one-directional from BSL to direct lending.
As competition for deals intensified, pricing and terms continued to shift in favor of borrowers. Spread compression is the most visible indication of this trend: After peaking at 716 basis points in March 2023, global new-issue, direct loan median spreads fell to 666 basis points at year-end 2023, 596 basis points at year-end 2024, and 544 basis points at year-end 2025 (Exhibit 2).9 Up-front fee economics also declined; origination prices rose to 99.1 percent of par (from 98.4 percent in 2023).10 Together with declining base rates (three-month secured overnight financing rate averaged 4.35 percent in 2025, down from 5.27 percent in 2024), these shifts pushed all-in new-issue yields in 2025 down to approximately 9.3 percent, a decline from 10.5 percent in 2024.11 Leverage ratios on new-issue transactions have not declined commensurately; averaging 4.9 times EBITDA in 2025, compared with 5.0 times EBITDA in 2024 and 5.2 times EBITDA in 2023.12
Loan documentation has become more borrower-friendly as well, especially at the upper end of the market, which competes directly with syndicated financing packages. Overall, covenant-lite transactions rose to 21 percent of direct lending deals in 2025, up from 4 percent in 2023.13
Fundraisers: The evolution of capital formation
By traditional fundraising metrics, private credit softened in 2025: closed-end fundraising fell 16 percent year over year to approximately $165 billion (Exhibit 3).14 This continued a multiyear contraction in closed-end fundraising dating back to 2021 and mirrored, albeit somewhat less starkly, the decline seen in private equity over the same period (–9 percent versus –12 percent per annum, respectively). Increasingly, however, a growing share of private credit capital formation is occurring outside the closed-end structures tracked by traditional fundraising statistics. By broadening the scope to include BDCs, evergreen funds, interval funds, insurance mandates, and other permanent-capital vehicles, a different story emerges: one of a structural shift in how capital enters the asset class, rather than a retreat from it.
Trends across private credit strategies and regions
Fundraising trends for closed-end funds varied meaningfully by strategy. Direct lending funds fell 28 percent,15 likely driven in part by the strategy’s prevalence in open-end-fund structures, as well as by a shift in investor preferences away from a more competitive market segment.
Collectively, strategies outside direct lending showed year-over-year growth of 22 percent from 2024 to 2025. Distressed debt led the way, surging nearly 180 percent,16 anchored by the largest distressed debt fund in history, Oaktree Capital Management’s $16 billion Opportunities Fund XII.17 Growing interest in the strategy may indicate that investors anticipate attractive distressed opportunities to arise in 2026. Mezzanine fundraising rebounded approximately 26 percent after a sharp 80 percent decline in 2024, and special situation funds declined 37 percent year over year, largely reflecting a normalization after an outsize 2024. Both mezzanine and special situations strategies are highly concentrated and can experience significant year-to-year volatility based on the timing of a small number of large fund closures.18
Private credit fundraising for closed-end funds declined across all major regions in 2025, reflecting a broad-based global moderation in capital raising. North America remained the largest market, accounting for 64 percent of global fundraising, followed by Europe at 32 percent. North America and European closed-end fundraising have followed a similar multiyear trend, declining at CAGRs of –8 percent and –9 percent, respectively, since 2021.
Market concentration and advantages of scale
Even in a softer fundraising market, scaled managers continued to raise record-size vehicles, underscoring that capital is being concentrated in fewer hands. For example, Ares Management raised €17.1 billion in LP commitments for its sixth flagship European fund, marking the largest closed-end private credit vehicle ever on the basis of LP commitments.19
Indeed, private credit fundraising for closed-end funds in 2025 continued to trend toward concentration (Exhibit 4). The top 25 managers accounted for approximately 72 percent of total fundraising,20 and the seven largest private credit platforms increased assets under management (AUM) at approximately 20 percent annually from 2022 to 2025, outpacing the overall market.21 What is clear is that scale matters considerably. It enables broader product offerings, timelier liquidity, and larger diversified holds—capabilities that smaller managers can often struggle to replicate.
Wealth channel and intermittent-liquidity vehicles
Private credit capital formation is increasingly taking place outside the closed-end structures that traditional fundraising statistics capture. Our analysis indicates that evergreen and open-end private credit AUM grew approximately 27 percent year over year in 2025, with growth across BDCs, interval funds, and tender offer vehicles.
Many of these vehicles are structured to provide intermittent liquidity—typically through quarterly redemption windows—in order to better suit investors in the wealth channel. Managers have often referred to capital raised in the wealth channel as “permanent,” and indeed the capital has historically proven fairly sticky. A different dynamic emerged in late 2025, however, as concerns over credit quality and broader market sentiment prompted a sharp increase in redemption activity. Based on an analysis of BDCs by Fitch Ratings, redemptions in the fourth quarter of 2025 nearly tripled over the prior quarter, averaging 4.5 percent of NAV. Five BDCs received (and honored) redemption requests in excess of their 5 percent quarterly caps. The rush to withdraw capital continued to accelerate in the first quarter of 2026 and is shaping up to be one of the prime tests for the asset class over the coming year, particularly for managers that have sourced a large portion of their capital base from the wealth channel.22
Insurance partnerships
Insurance and private credit continued to converge in 2025, driven by a structural alignment: Private credit has historically offered the predictable, yield-generating cash flows insurers seek, while insurers have provided stable, long-duration capital that reduces managers’ dependence on cyclical fundraising. Partnerships continued to proliferate in 2025: MetLife Investment Management acquired PineBridge Investments,23 and Manulife acquired a 75 percent stake in Comvest Credit Partners.24
The trend is arguably still in the early innings: Goldman Sachs Asset Management’s 2025 Global Insurance Survey found private credit to be the most in-demand exposure for insurance chief investment officers representing $14 trillion in assets, with 58 percent planning to increase allocations. Notably, much of this capital is flowing into investment-grade strategies and structures, with 40 percent of insurers planning to increase allocations to investment-grade private credit, and 36 percent to asset-backed finance, reflecting insurers’ preference for investment-grade-rated risk and positioning them as a key catalyst for private credit’s ongoing expansion beyond leveraged lending.25
Limited partners: Conviction through the transition
In 2025, LPs navigated a market where the consistency that had defined private credit over the past decade gave way to more varied conditions. A series of notable defaults and a modest rise in certain credit quality indicators prompted increased scrutiny of existing portfolios for potential softness. Despite these concerns, private credit’s performance in 2025 held largely in line with historical levels.
Performance held steady
Pooled net internal rate of return (IRR) for private credit was 8.5 percent in 2025, compared with 7.0 percent for 2024. Despite declining new-issue yields and mounting concerns of higher defaults and losses, the asset class continued to perform well.
Private credit’s 2025 performance broadly tracks with the asset class’s long-term performance—median IRR for 2013–2022 vintages was 8.8 percent. Return dispersion remained the narrowest of all private market asset classes, with a 5.1-percentage-point spread between top- and bottom-quartile managers—compared to approximately 14.3 percentage points in private equity and 6.7 in infrastructure.26 Across strategies, absolute returns as well as dispersion are smaller in strategies such as direct lending and asset-based lending but higher in more risk-seeking strategies such as opportunistic and distressed credit (Exhibit 5). Manager selection becomes increasingly critical as investors move up the risk curve.
The metrics used to assess the health of private credit portfolios—and therefore the outlook for future performance—have important structural limitations. Most important, they reflect portfolio conditions from one to two quarters ago and may not capture current conditions.
Nevertheless, available indicators of underlying credit quality appeared largely within historical ranges in 2025. Global median interest coverage for senior and subordinated corporate debt improved to 2.09 times EBITDA in the third quarter of 2025, up from 1.83 times EBITDA a year earlier.27 Cliffwater reports that payment-in-kind income as a percentage of total investment income in direct lending declined to 7.3 percent in the fourth quarter of 2025 from 8.1 percent a year earlier, broadly in line with 2022–23 levels.28 And while managers did mark positions down slightly in the fourth quarter, the share of loans marked below 90 remained within recent historical ranges. At year-end 2025, approximately 5.5 percent of US first-lien credit loans were marked below 90 (5.4 percent globally), up from 4.9 percent (4.6 percent globally) at year-end 2024.29 This level remains significantly less severe than during the COVID-19 pandemic.
Investor appetite bifurcates
Institutional LP conviction in private credit remains firm. McKinsey’s January 2026 LP Survey found that 40 percent of LPs plan to increase private credit allocations over the next 12 months (versus 26 percent who plan to decrease)—up from 38 percent who planned to increase in the prior year and exceeding the share planning to increase private equity or real estate commitments.30 This positive sentiment signals that private credit’s senior position in the capital structure, predictable income profile, and narrow return dispersion continue to appeal to institutional investors, at least through the beginning of this calendar year.
The picture is murkier for the wealth channel, where momentum has stalled. Net inflows were positive over the course of 2025, despite the spike in redemption requests, but the trajectory of fundraising thus far in 2026 suggests that that growth may stall or reverse. Private credit capital held in semiliquid structures now represents significant portions of the AUM of several large managers, which have invested heavily to raise capital in the wealth channel over the past five years. The durability of this capital has become a central question for the asset class in 2026.
Private credit on new terrain
As private credit matures, it is expanding to new areas of the financing economy, meeting the needs of investors who seek greater diversification and providing solutions for new classes of borrowers. Two prominent growth areas are asset-backed finance (ABF) and credit secondaries.
Asset-backed finance
In prior reports, we’ve tracked private credit’s long-term expansion into ABF, a trend which progressed significantly in 2025.31 Based on available data for deal volume and performance, we estimate that closed-end funds that pursue ABF opportunities32 raised approximately $27.1 billion through 2025 to capture 16.4 percent of all closed-end private credit fundraising.33
That’s a notable jump from a 10.6 percent market share in 2024.34 Including capital raised for real estate and infrastructure credit funds (which is categorized under their respective asset classes), ABF fundraising totaled $70 billion in 2025. While that growth illustrates the growing prevalence of ABF closed-end funds, it understates the scale of managed assets in the private ABF market as a whole, much of which is backed by insurance-linked and other forms of capital that are not captured in traditional fundraising statistics.
The strategic significance of ABF extends beyond recent fundraising trends. The addressable market for private credit in the United States alone could exceed $30 trillion—with ABF, infrastructure, residential mortgages, and commercial real estate among the asset classes most likely to transition from bank balance sheets to nonbank lenders.35 An estimated $5 trillion to $6 trillion of such assets could shift into the nonbank ecosystem over the next decade, dramatically expanding private credit’s footprint. This development is also fueled by megatrends in digitalization, decarbonization, and deglobalization, which are projected to drive $106 trillion in infrastructure investment over the next 14 years.36 Infrastructure credit has emerged as a particularly fast-growing segment of ABF, driven by the enormous capital needs of the AI build-out, including data centers, fiber networks, and power generation. Meta’s choice to tap the private markets for $29 billion to finance the construction of a Louisiana data center last year illustrates the scale of this opportunity.37
Credit secondaries
A second prominent growth area is private credit secondaries, for which deal volumes nearly doubled (to $20 billion) from 2024 to 2025. GP-led volume tripled year over year to $12 billion in 2025 (60 percent of total volume). The closing of multibillion-dollar continuation vehicles—including TPG Twin Brook Capital Partners ($3 billion), Crescent Capital ($3.2 billion), and Benefit Street Partners ($2.3 billion)—reflects increasing investor demand for liquidity solutions in a maturing asset class.38 LP-led volume, meanwhile, grew by 16 percent to $8 billion.39 From a fundraising perspective, dedicated secondaries buyers raised significant amounts of capital to meet demand, highlighted by Ares Management ($7.1 billion)40 and Coller Capital ($6.8 billion).41
The rapid growth of private credit secondaries reflects several converging forces: the maturation of a large pool of 2019–22 vintage funds generating natural liquidity demand, redemption pressures at semiliquid vehicles prompting managers to use secondary sales as a portfolio management tool, and the entry of dedicated secondaries capital. For the broader private credit ecosystem, secondaries represent an important structural development that parallels an evolution in PE, introducing a layer of price discovery and liquidity into what has traditionally been a hold-to-maturity asset class.
Looking ahead
If 2025 was a year of maturation for private credit, the associated growing pains arguably emerged in the first three months of 2026. BDC share prices have traded down even further, and redemption requests have increased (with initial estimates of 16 percent of NAV in the first quarter of 2026),42 in several cases prompting managers to limit fulfillment. Concerns over underlying loan quality have moved from specialist commentary into mainstream financial coverage. The broader economic backdrop has become more fraught as well. Rapid advances in large language models have raised fundamental questions about the long-term prospects of software businesses that comprise a significant portion of private credit portfolios. Geopolitical tensions continue to weigh on borrower confidence, and the trajectory of employment and interest rates remains uncertain.
For managers, the implication is clear: Private credit is becoming less about deploying capital at pace and more about deploying it with precision. The platforms best positioned for this environment command origination networks that reach beyond the crowded upper-middle market, maintain underwriting discipline under competitive pressure, and possess the infrastructure required to manage the liquidity demands of semiliquid capital alongside a maturing credit book. That’s an opportunity—and a challenge. Managers that excel in disciplined underwriting, transparent portfolio reporting, and proactive credit management, while making bold moves into new growth areas as conditions and capabilities warrant, will be best positioned to capitalize on the new set of market dynamics.
