Private Credit Faces Biggest Test Since 2008 Crisis
- Editor
- 3 days ago
- 2 min read
What's New
With Intelligence's Private Credit Outlook 2026 reveals that the asset class enters 2026 confronting its most challenging environment since the financial crisis, with cracks emerging in corporate credit evidenced by high-profile leveraged loan defaults, rising PIK usage now at 8% of BDC investment income, and a "true" default rate approaching 5% when selective defaults are included—setting the stage for over $100 billion in recently raised distressed and opportunistic funds to deploy capital.
Why It Matters
This stress test arrives as private credit undergoes rapid structural transformation, with LPs diversifying away from US direct lending toward European markets and specialty finance, evergreen structures proliferating to capture private wealth, and the traditional balance of power between institutional investors and asset managers shifting fundamentally—changes that will reshape the $1.8 trillion market through 2030.
Big Picture Drivers
Market vulnerability: 40% of private credit borrowers now have negative free cash flow, up from 25% in 2021, while PIK toggles increasingly appear in senior secured loan documentation
Geographic reallocation: European fundraising hit a record $65 billion through Q3 2025, capturing 35% of all private debt capital versus roughly 24% in prior years
Structural shift: Evergreen private credit AuM reached $644 billion, up 45% year-over-year, with non-traded BDCs growing from zero in 2021 to over $200 billion
Strategy rotation: Specialty finance surged to $37 billion in 2025 fundraising—more than the previous two years combined—challenging direct lending's dominance
Regulatory catalyst: Basel IV implementation will accelerate European bank disintermediation, while US defined contribution market access opens $13 trillion to private credit managers
By The Numbers
$100bn: Capital raised by distressed and opportunistic credit funds over past two years
$644bn: Total assets in evergreen private credit vehicles as of June 2025
$16bn: Record credit secondaries fundraising in first three quarters of 2025
$1.5tn: Perpetual capital managed by five largest listed private markets GPs (40% of combined AuM)
€17.1bn: Ares Capital Europe VI's record-breaking European fundraise
Key Trends to Watch
Secondaries acceleration: GP-led credit continuation vehicles surpassed LP-led transactions for the first time in 2025, with average loan duration extending from 2-3 years to 4-5 years due to difficult PE exits.
Private wealth dominance: '40 Act vehicles projected to surpass $1 trillion by 2028, with KKR targeting 50% of capital from high-net-worth clients over the medium term.
Asset-based finance expansion: Specialty finance now represents 34% of funds in development versus 23% in 2024, positioning ABF to potentially overtake direct lending long-term.
Junior capital resurgence: Seven largest hybrid junior debt funds target over $50 billion, 30% more than 2023-2024 combined fundraising, as PE sponsors seek partial realizations.
The Wrap
Private credit's first full credit cycle test will separate skilled managers from those who rode the beta wave, while simultaneously accelerating the market's evolution toward European diversification, evergreen structures, and asset-based strategies—creating both heightened near-term risk and substantial long-term opportunity for allocators who navigate the transition thoughtfully.
Read Full Report: Private Credit Outlook 2026