Recent trends in corporate direct lending 1H26

Executive summary

Fundraising: Global private debt fundraising totaled ~$133 billion so far in 2026, which represents one of the strongest historical fundraising periods, as institutional investors continue to allocate large amounts of capital to the asset class. For retail-oriented evergreen vehicles, the story has inflected: after robust net inflows through 2025, redemptions have risen steadily since late 2025 and BDC net flows turned negative in the first half of 2026. However, there are significant differences between managers and funds

Volume: Direct lending deal activity stayed subdued and slipped below long-term averages with US sponsored middle-market volume down to ~$46 billion in 1H26 and middle-market M&A volume at ~$25 billion. Looking more broadly at use of proceeds, new-platform LBOs and add-on acquisitions remained the largest drivers of activity in 1H26, despite an overall slowdown in transaction volume. Meanwhile refinancing and recapitalizations continued to supplement volumes. Overall, the AI scare and geopolitical uncertainty continue to weigh on private equity activity, and thus direct lending deal flow.

Return drivers: The direct lending trailing 12-month total return declined to 8.1% in March 2026, while income returns only slightly decreased to 9.9%. This was largely due to an increase in unrealized losses. New transactions’ gross asset yields stabilized and marginally increased above 9% as primary spreads and OIDs widened modestly in the first half of 2026.

Credit risk: Fundamentals at underwriting remain resilient and, if anything, more conservative. Total leverage at underwriting has declined over the past year across regions, with the IT sector seeing the biggest decrease. Meanwhile, interest coverage ratios have noticeably improved. Payment defaults also remain contained and below their long-term averages.

Relative value: Despite a narrower premium, direct lending continues to offer an attractive value proposition as public markets remain firmly risk-on despite the uncertain macroeconomic environment. Public market performance is also increasingly concentrated on AI, which could lead to significant volatility and drawdowns if AI-related expectations fail to materialize. In this environment, direct lending can provide downside protection and portfolio diversification, acting as a safe haven during periods of volatile moves in public markets.

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