Private credit news: 2026 institutional brief

Private credit’s growth path and market size expectations

Private credit’s scale continues to expand alongside its role in corporate finance. Recent legal and market analysis points to private credit assets potentially reaching between $2.8 trillion and $3.5 trillion by 2028, underscoring a durable multi-year growth trajectory supported by institutional allocations and sponsor demand for certainty of execution (source: Troutman Pepper). As historical context, expectations for a rebound in M&A activity through late 2024 into 2025 positioned private credit as an additional acquisition financing channel, helping to accelerate deployment and market penetration at that time (Troutman Pepper).

Parallel to AUM growth, bank–nonbank linkages have deepened. The Congressional Research Service (CRS) reports that U.S. bank loans and leases to non-depository financial institutions doubled from approximately $500 billion in January 2019 to $1 trillion in January 2024, rising more than 10% year over year by that date (CRS). This expansion reflects the increasing interconnection between banks and private-market lenders and provides additional balance-sheet and liquidity support to nonbank financing activity.

CRS characterizes private credit as lending by nonbank financial institutions to small- and medium-sized private companies, with direct lending as the most common type. Other categories include distressed debt, special situations, bridge financing, venture debt, and mezzanine debt (CRS). This breadth helps explain the asset class’s resilience and its capacity to absorb capital across cycles.

Deals are getting bigger: club structures and LBO financing share

Deal size has stepped up. Facilities exceeding $1 billion are increasingly common, with club-style direct lending structures often involving one to six lenders (Troutman Pepper). These clubs are enabling private credit companies to fund larger, multi-tranche transactions while preserving speed and confidentiality that sponsors value.

Private credit’s penetration in sponsor-backed buyouts is now substantial. Current estimates indicate private credit is funding about 85% of leveraged buyouts (Troutman Pepper). Oaktree notes that sponsors have turned to direct lending to avoid lengthy road shows and broad disclosures typical of syndicated markets, sometimes achieving higher leverage than is available in the syndicated loan market; in select cases, sponsors used annual recurring revenue (ARR) loans for not-yet-profitable companies (Oaktree). This evolution highlights both the competitive advantages of direct lending firms and the underwriting complexity embedded in larger, bespoke financings.

Terms are evolving: from covenant-lite BSL to covenant-loose private loans

Documentation and covenant trends continue to converge with the broadly syndicated loan (BSL) market, though with private-market nuances. Troutman Pepper observes that private credit has adopted features of syndicated loans but with less stringent covenant structures. Many facilities are now described as “covenant loose,” often retaining a single maintenance covenant with generous cushions (Troutman Pepper). By contrast, the BSL market is widely associated with “covenant-lite” packages centered on incurrence tests.

For allocators, two implications stand out. First, while private loan protections may exceed covenant-lite BSLs in some cases, the direction of travel toward flexibility is clear. Second, looser structures in larger club deals raise the importance of lender coordination rights, information access, and remedies—areas where manager experience and documentation discipline can materially influence outcomes.

Banks and private credit: partners and competitors in today’s market

Post–global financial crisis regulation made bank lending more conservative, opening long-term space for nonbank lenders. Today’s landscape is more complementary: direct lending both competes with and augments the traditional debt capital markets, with banks increasingly partnering alongside nonbank participants (industry discussion; see approved source). These partnerships can include asset aggregation, distribution, risk sharing, or balance-sheet support.

CRS data on the doubling of bank loans and leases to non-depository financial institutions between 2019 and 2024 further highlights this interconnection (CRS). The linkage offers benefits—broader origination channels and potential liquidity backstops—but also warrants policy attention to ensure that risk transfer mechanisms and data transparency keep pace with market growth.

Liquidity watch: evergreen vehicles and non-traded BDC redemption pressures

Liquidity and fund structure are front of mind in 2026. Morgan Stanley’s Global Investment Office notes that in early 2026, concerns about AI’s impact on software business models coincided with a surge in redemption requests from evergreen direct lending strategies, elevating focus on liquidity terms, valuation marks, and portfolio quality (Morgan Stanley). The firm believes direct lending is entering a new phase in which returns may normalize, redemption requests could remain elevated, and manager selection becomes increasingly critical (Morgan Stanley).

Goldman Sachs similarly highlights that current worries are concentrated in non-traded BDCs, discussing concerns around recent redemption requests (Goldman Sachs). While redemption policies, gates, and pacing tools vary by vehicle, the common thread is the need for alignment between portfolio liquidity, valuation cadence, and investor terms—particularly in strategies with concentrated exposures to sectors experiencing rapid technological change.

Capital is rotating: beyond direct lending to ABF and opportunistic credit

Fundraising dynamics point to a broader opportunity set. Wellington, citing PitchBook data, reports that direct lending’s share of private debt fundraising fell from 58.4% in 2024 to 31% by Q1 2026, with capital flowing into infrastructure debt, real estate credit, special situations, and other asset-backed opportunities (Wellington). This rotation reflects both cyclical and structural drivers: tighter underwriting in core corporate credit, investor demand for collateral-backed structures, and strategy diversification to manage liquidity profiles.

Asset-based finance (ABF) stands out. J.P. Morgan highlights industry estimates that the global investable ABF market is about $7 trillion, with private capital representing roughly 5% share—below its ~9% share of corporate lending. ABF lenders can command higher spreads than comparable public ABS (J.P. Morgan Private Bank). The gap between private penetration in ABF and corporate lending suggests capacity for continued private-market growth, while the collateralization and performance data typical of ABF can offer differentiated risk-return characteristics versus unsecured corporate direct lending.

For allocators evaluating re-ups with direct lending firms, the key is portfolio complementarity: ABF and opportunistic credit can diversify cash-flow profiles, collateral types, and duration, potentially helping balance redemption dynamics in evergreen vehicles while targeting idiosyncratic alpha in special situations.

Policy lens: how regulation and bank linkages shape private credit risk

CRS frames private credit as a nonbank channel serving small- and medium-sized private companies, with categories that extend well beyond first-lien direct lending into distressed, mezzanine, venture debt, bridge, and special situations (CRS). This diversity complicates one-size-fits-all policy prescriptions and underscores the importance of granular risk assessment.

Two policy-relevant observations emerge from the data:

• Interconnectedness: The doubling of bank loans and leases to non-depository financial institutions from 2019 to 2024 (CRS) evidences growing bank–nonbank ties. Monitoring these exposures helps illuminate how credit, liquidity, and valuation risks may transmit across the financial system.
• Market structure: Post-GFC rulemaking left banks more conservative, while nonbanks scaled to meet borrower and sponsor demand. Industry commentary indicates banks and private lenders now both compete and collaborate, with partnership models expanding as private credit matures (industry discussion; see approved source).

Allocators should incorporate these dynamics into manager due diligence—particularly where fund strategies rely on bank facilities, financing lines, or capital markets take-outs.

Outlook: dispersion, manager selection, and where opportunities may lie next

Performance dispersion is widening across managers. J.P. Morgan notes normalizing yields and AI-driven disruption affecting software-heavy portfolios, making manager selection more critical (J.P. Morgan Private Bank). Oaktree adds historical context: rapid manager and capital growth following the GFC intensified competition, contributing to lower yields, narrower spreads, and reduced safety standards among some lenders (Oaktree). Together with Morgan Stanley’s view that direct lending is entering a new phase with potentially elevated redemption requests (Morgan Stanley), the forward-looking picture points to greater differentiation by underwriting quality, sector selection, and liquidity management.

Key allocator priorities now:

• Manager selection: Emphasize cycle-tested teams with proven restructuring experience, disciplined documentation, and robust workout capabilities. Validate consistency between underwriting frameworks and today’s “covenant loose” environment (Troutman Pepper).
• Liquidity design: Align commitment pacing, side-pocket policies where relevant, and gate mechanics with portfolio liquidity and valuation frequency. Stress-test evergreen vehicles and non-traded BDCs for redemption scenarios highlighted by recent experience (Morgan Stanley; Goldman Sachs).
• Sector diligence: Reassess software and other tech exposures given AI-related business model risks noted by multiple institutions (Morgan Stanley; J.P. Morgan Private Bank). Scrutinize recurring-revenue underwriting, customer concentration, and ARR loan usage in earlier-stage or not-yet-profitable borrowers (Oaktree).
• Strategy mix: Reflect fundraising rotation by selectively adding ABF, infrastructure debt, real estate credit, and special situations. ABF’s large investable universe, low current private penetration, and potential spread advantages versus public ABS argue for continued exploration (J.P. Morgan Private Bank; Wellington).
• Bank partnerships: Map counterparties and facilities that support portfolio financing. Track bank–nonbank exposure trends and consider the implications of any shifts in bank risk appetite (CRS; industry discussion).
• Terms and covenants: In larger club deals, focus on lender alignment, voting thresholds, information rights, and remedies. Evaluate the trade-offs between speed and structural protections as private credit continues to absorb bigger transactions (Troutman Pepper).

Bottom line for 2026: Private credit continues to scale, with billion-dollar club deals common and private lenders financing the majority of LBOs (Troutman Pepper). Yet the market is entering a more discerning phase. Fundraising is diversifying beyond core direct lending (Wellington), yields are normalizing with wider performance dispersion (J.P. Morgan Private Bank), and liquidity governance has moved to the forefront amid redemption pressures in evergreen strategies and non-traded BDCs (Morgan Stanley; Goldman Sachs). In this environment, institutional outcomes hinge on manager selection, strategy mix, and disciplined attention to documentation, liquidity, and sector-specific risks.