Private Credit Is Pivoting Away From Direct Lending as Fundraising Dries Up

Private credit managers are shifting away from their core business of direct lending as fundraising collapses and investors pull money out of the sector at a record pace. Fundraising for non traded business development companies, one of the main vehicles individual investors use to access private credit, fell to 2 billion dollars in the second quarter, an 82 percent drop from the 11 billion dollars raised a year earlier and the lowest level since 2020, according to data from Robert A. Stanger and Co.

The pullback was not limited to new money coming in. Investors sought to withdraw a record 23 billion dollars from private credit funds during the same quarter, a sign that the retreat is being driven as much by existing investors heading for the exits as by a slowdown in new commitments.

Wealth managers, who had helped fuel private credit's rapid growth by steering client money into the space in recent years, are now pulling back and searching for alternatives. Much of that caution traces to sudden exit restrictions several major direct lending funds imposed earlier this year, restrictions that left some investors unable to withdraw money as quickly as they expected and shook confidence in the asset class's liquidity.

In response, private credit managers are increasingly framing direct lending as just one piece of a much broader private credit landscape rather than the centerpiece of their business. Apollo Global Management has been among the firms pushing that message, pointing to strategies beyond traditional corporate lending, such as asset backed finance and other structured credit, as areas where it sees more room to grow.

The shift marks a notable turn for an industry that spent years marketing direct lending as a steady, less volatile alternative to public credit markets. With fundraising down sharply and withdrawals at record levels, managers now face the challenge of proving that private credit's other strategies can hold up under the same kind of investor scrutiny that direct lending funds are currently facing.