Recent Trends in Corporate Direct Lending 2H25

Executive summary

Fundraising: Private debt fundraising remained healthy in 2025, with Europe rebounding as investors diversified away from the US, where fundraising weakened. Evergreen vehicles (e.g., BDCs) continued to grow rapidly, broadening the investor base but reinforcing deployment pressure.

Volume: Direct lending volumes remained within historical norms, but slower M&A and weak private equity exits constrained LBO activity. Refinancings, add-ons and dividend recaps continued to represent a substantial share of the volume. A sustained M&A recovery is the key to improved market balance in 2026.

Return drivers: Returns softened modestly versus 2024, driven by lower base rates and tighter spreads, not credit losses. Gross yields remain between 9–10% and above long-term averages, supported by still-elevated base rates and lower potential for further spread tightening.

Credit risk: Borrower fundamentals improved incrementally, with stable leverage, declining LTVs and recovering interest coverage ratios. Defaults rose from 2022 trough levels but remain constrained and below historical averages, supporting a constructive outlook into 2026.

Relative value: Public credit spreads have tightened sharply and valuations appear stretched, leaving limited margin for error. Direct lending continues to offer a meaningful premium versus leveraged loans and high yield, reinforcing its role as a core allocation in credit portfolios.

Direct lending fundraising and deal volume

Fundraising to remain healthy; strong growth for evergreen funds

Private debt fundraising remained healthy in 2025 and total capital raised is likely to reach 2024 levels. This would leave fundraising below the stellar years of 2021 and 2022 but within historical norms (Figure 1). Notably, European fundraising rebounded after a weaker 2024, as investors looked to diversify from the US. Fundraising in the US, by contrast, weakened in 2025.
 

Figure 1: Global Private Debt Fundraising

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Source: Preqin, as of November 2025.
 

Evergreen funds, including BDCs, have experienced strong fundraising as private lenders tap the private wealth channel and diversify beyond traditional institutional capital. This influx of capital has intensified deployment pressure in the direct lending market, as evergreen vehicles must deploy quickly to limit cash drag and avoid performance dilution. With evergreen products poised to expand significantly in the years ahead, these deployment pressures will likely persist.

Direct lending remains the preferred strategy for private debt allocations, though investors are increasingly exploring other opportunities within the asset class (Figure 2). Even so, direct lending is expected to stay a core allocation, as continued fundraising success sustains strong demand for corporate loans and maintains deployment pressure for managers.
 

Figure 2: Global Private Debt Fundraising Share by Strategy

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Source: Preqin, as of November 2025.
 

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