Private credit's rapid expansion appears to be losing steam as recent data show a marked slowdown in U.S.-focused direct lending issuance and fundraising that remains below its recent peak.
According to PitchBook, new loan issuance by private credit lenders totaled $44.76 billion in the three months ended May 2026, a decline of roughly 40% from $74.56 billion in the first quarter. Lending to private equity-backed borrowers fell nearly 37% over the same span to $28.5 billion. Direct lending volume tied to leveraged buyouts contracted by about 34% to $15.15 billion.
Those figures point to a retrenchment in origination activity, as managers confront softer fundraising, elevated redemption requests, tighter scrutiny on loan quality, and renewed competition from lower-cost syndicated loan markets. The mix of pressures is prompting some firms to be more selective in deployment and to consider defensive steps to preserve capital.
Concerns about credit quality have intensified after stress in software debt, a sector widely held across leveraged finance and private credit portfolios. PitchBook’s Leveraged Commentary and Data unit reported software loans in the Morningstar LSTA U.S. Leveraged Loan Index were down 4.7% year-to-date through May 31, compared with a 1.2% gain for the broader index. That relative weakness has heightened investor caution about sector concentration and borrower fundamentals within private credit books.
A sustained slowdown in originations could pressure private credit managers' earnings by limiting asset growth and reducing transaction fees, particularly if funds experiencing redemptions choose to hold cash rather than deploy into new loans. Early filings for the second quarter indicate redemption stress has continued. Blackstone and Cliffwater both capped withdrawals from their private credit vehicles at 5% after redemption requests exceeded quarterly limits. Investors sought to redeem 10% of shares in the Blackstone Private Credit Fund and 17% of Cliffwater's $31.3 billion fund.
Fundraising metrics reflect the tentative backdrop. Preqin data show investors committed $45 billion to private credit funds in the first four months of 2026, virtually unchanged from $44.5 billion in the same period of 2025 but below the $52.2 billion raised in the comparable period in 2023. That suggests limited net new capital has entered the sector so far this year.
Retail flows have also softened. Jefferies reported that private wealth flows across tracked retail alternative products fell 17% month-on-month in May, marking a second consecutive monthly decline, with private credit flows down 35% in May. Jefferies added that private credit flows in the second quarter to date were down 70% from the first-quarter average, indicating a sharp pullback in retail investor allocations.
Collectively, the decline in issuance, the stagnation in fundraising versus recent peaks, persistent redemption requests, and sector-specific weakness in software loans portray an industry shifting toward caution. For managers, the immediate priorities include managing liquidity to meet redemptions, maintaining loan underwriting standards amid greater scrutiny, and assessing the competitive dynamics with the syndicated loan market.
Key points
- Direct lending issuance fell to $44.76 billion in the three months ended May 2026, down about 40% from $74.56 billion in Q1.
- Issuance to private equity-backed borrowers dropped nearly 37% to $28.5 billion; direct lending tied to leveraged buyouts fell about 34% to $15.15 billion.
- Retail and institutional fundraising softened - $45 billion committed in first four months of 2026, little changed from 2025 but below 2023 levels; retail private credit flows fell sharply.
Risks and uncertainties
- Continued originations slowdown could limit asset growth and transaction fees for private credit managers, affecting firms that rely on deployment-linked revenue - impacting asset managers and lenders.
- Elevated redemption requests, as shown by caps at 5% at Blackstone and Cliffwater after requests of 10% and 17% respectively, may force funds to hold cash rather than extend new loans - affecting fund liquidity and investor returns.
- Weakness in software loans, which are down 4.7% YTD versus a 1.2% gain for the broader leveraged loan index, raises credit quality concerns for portfolios concentrated in that sector - impacting leveraged finance and private credit portfolios.