Private credit managers are shifting away from traditional direct lending as fundraising slows, investor withdrawals remain elevated and new loan origination declines, according to Private Equity Wire.
Fundraising and Redemption Data
Non-traded business development companies raised about $2bn in the second quarter, an 82% decline from $11bn in the same period a year earlier, according to Robert A Stanger & Co. The quarterly total marked the lowest level since 2020. Investors sought to withdraw a record $23bn from private credit funds during the quarter. Managers continued to restrict redemptions to 5% of assets, leaving substantial capital locked up. The latest withdrawal request figures are scheduled for release at the end of August when non-traded funds report results.
Effects on Business Development Companies
Weaker fundraising has reduced capital available for new loans at non-traded funds. Publicly traded BDCs have also seen loan portfolios shrink, with repayments exceeding new originations for a third consecutive quarter according to PitchBook LCD data. Listed BDCs have shown more resilient results, with managers focusing on portfolio clean-up and reducing exposure to weaker investments. BDC leverage remains tied to portfolio values under regulatory asset-coverage rules that require $1.50 of total investments for every $1 of debt.
Manager Platform Adjustments
Apollo Global Management has highlighted the breadth of its private credit platform and noted that direct lending represents only a small part of the opportunity set. Blue Owl Capital reduced direct lending to around 35% of assets under management in July, down from approximately half two years earlier, while expanding into areas including data centre lending. Blackstone has pointed to growing exposure to AI-related investments as a contributor to recent performance that offsets slower growth in management fees from broader credit operations.
New Vehicles and Mandates
Activity has increased in private credit secondaries vehicles, investment-grade bond issuance and institutional mandates. Jefferies Credit Partners is targeting about €1bn for a fund focused on the private credit secondary market. 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. attracted demand for investment-grade bond offerings above initial targets, according to Private Equity Wire.
