Investors Keep Buying Private Credit Even as Their Concerns Multiply

What's New

Rede Partners' Private Credit Market Intelligence Report 2026, built on responses from 50 institutional LPs surveyed between February and May 2026, shows an asset class that keeps growing while its own investors grow more sceptical of its core product. Forty four percent of respondents plan to increase private credit allocations in the next twelve months and only 8 percent intend to cut, which reads as a clean vote of confidence. The detail underneath says something different. Seventy percent name competition driven spread and term compression in direct lending as their top concern, 58 percent expect portfolio problems to surface from weak underwriting, and 70 percent expect to diversify away from direct lending over the next year. The growth is real, but the money is moving sideways within the asset class rather than deeper into the strategy that built it.

Why It Matters

Private credit has reached the maturity point where allocation decisions stop being about the asset class and start being about strategy selection inside it. LPs who have spent five or more years in direct lending now hold several versions of the same exposure and are hunting for genuine differentiation rather than another senior secured pool. That shift rewards managers with credible capability in asset based finance, capital solutions and credit secondaries, and it punishes generalists who marketed diversification they cannot actually deliver. For technology platforms it changes the data problem entirely, because monitoring a portfolio of corporate loans is a different exercise from monitoring receivables pools, royalty streams and equipment leases.

Big Picture Drivers

• Spread compression is the consensus complaint: Seventy percent of LPs cite competition driven erosion of spreads and terms as their leading worry. When the marginal dollar of capital chases the same borrowers, the premium that justified the illiquidity disappears first.

• Underwriting quality is now a live question: Fifty eight percent expect portfolio issues to emerge from poor underwriting, with the Tricolor and First Brands failures in late 2025 serving as the reference points. Both involved integrity problems around asset backed collateral rather than macro shocks.

• Asset based finance is the designated successor: Twenty six percent plan to increase ABF allocations, nearly double the next strategy. The addressable market grew from $3.1 trillion in 2006 to $6.1 trillion in 2024 with roughly 50 percent further expansion forecast over five years.

• Capital keeps concentrating at the top: Managers founded before the global financial crisis captured about 75 percent of the $240 billion raised in 2025, while firms established in the past five years took under 1 percent. First time fund counts fell roughly 10 percent year on year.

• The ten percent line divides the portfolio: Sixty eight percent of investors target 10 percent or more from satellite strategies while 64 percent accept 10 percent or less from core. Any satellite strategy that cannot clear that threshold is structurally disadvantaged from launch.

• Semi liquid structures are tolerated, not embraced: Forty six percent have invested in evergreen vehicles with redemption features and 30 percent in open ended structures, but 40 percent voice reservations. Average redemption requests across the twelve largest BDCs hit 12.1 percent in Q1 2026 against typical 5 percent gates.

By The Numbers

• 44 percent plan to increase allocations over the next twelve months against 8 percent planning cuts, producing a weighted index of 4.47 that still points to growth.

• 70 percent expect to diversify beyond direct lending, the single highest ranked market expectation in the survey and a direct challenge to the strategy that holds 45 to 50 percent of deployed capital.

• Direct lending's share of new LP allocations fell from 58 percent in 2023 to 44 percent in 2025, quantifying a rotation that is already well underway rather than merely intended.

• 26 percent plan to raise asset based finance exposure, versus 6 percent for mid and upper middle market direct lending, the sharpest single reversal in the dataset.

• Megafund sizes have grown 14 fold since inception, with CVC European Direct Lending moving from €498 million to €17.1 billion, which is the mechanical cause of the spread compression LPs complain about.

• Semi liquid AUM passed $500 billion in 2025 and Morningstar projects $1.1 trillion by 2029, meaning the structural risk LPs flag is also the fastest growing part of the market.

Key Trends to Watch

• The satellite bucket becomes the battleground: With core direct lending returning roughly 9 percent, growth capital moves to strategies that can clear 10 percent net. Expect fundraising success to correlate with credible satellite positioning rather than scale.

• ABF underwriting infrastructure gets tested: Money is arriving faster than diligence capability. Insurers and consultants are already willing to back first time ABF funds in Europe, which is exactly the condition under which underwriting standards slip.

• Distress creates its own allocation: Sixty two percent see increasing opportunity for distressed and special situations managers. Capital solutions and special situations each sit at 54 percent primary or secondary focus, well ahead of where they stood two years ago.

• Liquidity mechanics move to the centre of diligence: The BDC redemption episode in early 2026 turned gating from a technical footnote into a first order question. LPs are scrutinising redemption mechanics with the seriousness they once reserved for credit terms.

• Credit secondaries scale into a real strategy: Volume nearly doubled to roughly $20 billion in 2025 with about $37 billion of dedicated dry powder, and 14 percent of LPs plan to increase exposure.

The Wrap

The honest reading of this survey is that LPs are not increasing private credit allocations because direct lending is working. They are increasing them because the asset class now contains enough distinct strategies that they can grow the line item while quietly reducing conviction in its centre. That creates a diligence and monitoring problem no one has fully solved, since asset based finance, capital solutions and credit secondaries each require different data, different valuation logic and different early warning signals. For technology providers, the opportunity is no longer building better direct lending reporting; it is building the layer that lets an LP see concentration, correlation and deterioration across strategies that were never designed to be compared.