Investing Ideas

Private Credit: Growth has consequences

Dramatic capital growth has compressed spreads and eroded key risk mitigating features of direct lending. The rise of the semi-liquid vehicle has amplified that pressure—particularly in the upper middle market.

By: Audie Apple Jeffrey Scott Andrea Flynn

Updated: 10/2/2026

Key Takeaways

Direct lending assets have nearly tripled in recent years to roughly $1.3 trillion,1 intensifying pressure on lenders to maintain underwriting and structural discipline as they compete for deals.
Much of that growth has come from monthly subscription vehicles (e.g., business development companies, or BDCs) aimed at individual investors. Continuous inflows may pressure managers to deploy capital on a schedule set by fundraising rather than by the quality of the opportunity.
Direct lending managers serving the largest borrowers now compete with the broadly syndicated loan (BSL) market—a cheaper, more borrower-friendly capital source. That alternative has allowed large borrowers to extract meaningful concessions that have reshaped risk-reward dynamics in the upper middle market (UMM).
Traditional middle market (TMM) lending remains focused on borrowers that have limited access to the BSL market. These managers still capture a meaningful spread premium to public markets and are able to negotiate material financial covenants—consistent with the asset class’s history.

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Private credit: Growth has consequences

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Private Credit: Growth has consequences

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1. LSEG Data and Analytics, Preqin, Fidelity Direct Lending Estimates, as of 12/31/25, see Exhibit 1 in paper.

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