Private Credit Managers Shift Beyond Direct Lending
Private credit managers are increasingly looking beyond traditional direct lending as fundraising slows, investor withdrawals remain elevated and new loan origination declines across parts of the market, according to a report by Bloomberg.
Q2 Fundraising and Redemption Data
Non-traded business development companies raised about $2bn in the second quarter. This represented an 82% decline from the $11bn raised in the same period a year earlier, according to Robert A Stanger & Co. The quarterly total was the lowest since 2020. Investors sought to withdraw a record $23bn from private credit funds during the quarter. Many managers continued to restrict redemptions to 5%, leaving substantial amounts of capital effectively locked up.
Stanger chief executive Kevin Gannon said the combination of weaker fundraising, persistent redemption demand and declining market flows was now having a visible impact on the size of the sector. The pressure has not, however, developed into the systemic crisis some investors had feared.
Listed BDC Performance
Recent results from listed business development companies have generally been more resilient, with managers focusing on portfolio clean-up and reducing exposure to weaker investments. The relative strength of those results has also helped support BDC share prices. According to PitchBook LCD data, the largest listed BDCs have reduced the size of their loan portfolios, with repayments exceeding new originations for a third consecutive quarter.
BDCs face particular challenges because their leverage is closely tied to the value of their investment portfolios. Regulatory asset-coverage requirements generally require a BDC to maintain $1.50 of total investments for every $1 of debt. While redemption activity is likely to remain elevated for the rest of the year, the ability to limit withdrawals to 5% of assets gives managers time to manage portfolios.
Manager Strategy Adjustments
The market’s difficulties are prompting alternative asset managers to emphasise businesses outside conventional middle-market direct lending. Apollo Global Management has repeatedly highlighted the breadth of its private credit platform, arguing that direct lending represents only a small part of the wider opportunity set. Blue Owl Capital has similarly reduced its reliance on direct lending. The strategy accounted for around 35% of its assets under management in July, down from approximately half two years earlier, as the firm has expanded areas including lending to data centres. Blackstone has also pointed to its growing exposure to AI-related investments as a contributor to recent performance, helping offset slower growth in management fees from its broader credit operations.
New Product and Mandate Activity
Recent activity across the sector includes new private credit secondaries vehicles, increased issuance of investment-grade bonds by private credit funds and fresh institutional mandates. Jefferies Credit Partners is targeting about €1bn for a fund focused on the private credit secondary market, while Partners Group recently closed a $1bn private credit mandate with a major Asian institutional investor. Blackstone Private Credit Fund and Blue Owl Technology Finance Corp. have also attracted demand for investment-grade bond offerings above their initial targets, according to Private Equity Wire.
