Key Takeaways
- Private credit’s decade-long rising tide is over. Defaults are climbing toward levels not seen in ten years, and the public BDC index is down 23% from its peak.
- The headline numbers are blunt. The real question isn’t whether private credit is in trouble, but which parts, and why.
- The market is already sorting winners from losers. Lower-middle-market lenders are holding par while upper-market vehicles fall, even though it’s the same asset class.
- Scale isn’t the same as resilience. With a record share of 2025 capital raised by funds over $1B, the pressure to deploy on a clock has real consequences for underwriting.
- Fundamentals are being rewarded. Wider spreads, lower leverage, and more covenants are showing up where discipline held, with defaults running at roughly half the core-middle-market rate.
- Dispersion is the signal, discipline is the answer. The cycle that exposes weakness is the same one that compounds advantage for disciplined managers.
Dispersion has arrived in private credit. Everyone swims well at high tide, but what happens when the tide goes out?
For most of the last decade, private credit rode a rising tide: capital flooded in, defaults stayed muted, and outcomes across managers looked remarkably similar. That era is closing. Rising defaults, concentrated stress in software and AI-adjacent borrowers, and a public BDC index down 23% from its peak add up to the first real stress test the asset class has faced in a decade.
The headline numbers are blunt, though. The interesting question isn’t whether private credit is in trouble, it’s which parts, and why. In our Q2 letter, we look past the surface data to where the stress actually sits:
- The market is already sorting winners from losers — lower-middle-market lenders are holding par while upper-market vehicles fall. Same asset class, very different outcomes.
- Scale isn’t the same as resilience — with a record share of 2025 capital raised by $1B+ funds, the pressure to deploy on a clock has consequences.
- Fundamentals are being rewarded — wider spreads, lower leverage, more covenants, and roughly half the default rate where discipline held.
Dispersion is the signal. Discipline is the answer. The tide is going out and we’re about to see who came prepared.
Read the full Q2 2026 report here: Avante_Beyond_the_Headlines_The Naked-Truth
Endnotes
- Aksia / AC Private Markets. Private Markets Research, 2026.
- Bank for International Settlements (BIS). Statistical and Research Publications, 2026.
- Bloomberg. Market Data and Analytics, 2026.
- BDC Research. Business Development Company Market Data, Q4 2025.
- BlackRock. 2026 Private Markets Outlook. BlackRock, 2026.
- Cambridge Associates. Private Credit Commentary. Cambridge Associates, April 2026.
- Cliffwater. Direct Lending and Private Credit Research. Cliffwater LLC, 2026.
- FactSet. Financial Data and Analytics, 2026.
- KBRA DLD Research. Direct Lending Deals Research. Kroll Bond Rating Agency, 2025.
- Morgan Stanley. Private Credit Industry Estimates. Morgan Stanley, 2026.
- Morningstar LSTA. Leveraged Loan Index Data. Morningstar / LSTA, 2026.
- Muzinich & Co. Private Credit Commentary. Muzinich & Co., February 2026.
- PineBridge Investments. Private Credit Research, 2026.
- PitchBook | LCD. Leveraged Commentary & Data. PitchBook Data, Inc., 2026.
- Preqin. Investor Outlook. Preqin Ltd., 2026.
- Proskauer. Private Credit Default Index, Q4 2025. Proskauer Rose LLP, 2026.
- Raymond James. BDC Weekly and Q4 2025 BDC Market Update. Raymond James Financial, 2025–2026.
- State Street Investment Management. Private Credit Outlook. State Street, March 2026.
- U.S. Securities and Exchange Commission. SEC Filings, 2026.
- Buffett, Warren E. Letter to the Shareholders of Berkshire Hathaway Inc. Berkshire Hathaway, 2001.