Private Credit Fundraising in 2025: Growth, Emerging Risks & Strategic Focus

The private credit market in 2025 demonstrated resilience amid rising challenges, with overall fundraising growth slowing but strategic shifts underway. As of mid-December 2025, global private credit funds had raised approximately $224.25 billion, a 3.2% increase over 2024, after 2024 itself saw ~9.7% growth. Direct lending remained the dominant sub-strategy, drawing over $91 billion, followed by specialty finance, opportunistic lending, and distressed debt. Europe emerged as a significant growth region; funds targeting multi-region and European investments together accounted for the largest share of capital raised.

However, emerging risks are registering across the sector. Although headline default rates stayed under 2%, when considering selective defaults and liability restructuring, the effective default rate approached 5% through the first nine months of 2025. Concurrently, the growing use of payment-in-kind (PIK) interest—particularly in documents attached to senior secured loans—signals increased borrower accommodations and lax covenant discipline. Retail and private-wealth inflows, especially via evergreen vehicles and non-traded BDCs, are amplifying concerns over mismatched liquidity, weak governance, and potential systemic shocks.

Looking ahead, demand for credit markets is expected to intensify in 2026, driven by two major structural themes: the AI investment cycle, which alone may produce $300-400 billion/year in debt issuance tied to AI infrastructure across major hyperscalers; and a revived wave of M&A and leveraged buyouts as financing costs ease. Nonetheless, conditions are being described as “favorable yet fragile”: in North America, borrowers will enjoy tight spreads and falling policy rates, but quality in private market segments is slipping. Europe is expected to walk a delicate balance, benefiting from resilient private sector fundamentals but facing risks from geopolitics and public debt.

Strategic implications for investors and financial institutions include the need to: maintain underwriting discipline; focus on sub-strategies and geographies with strong governance (e.g. Europe and distressed); monitor borrower financials for embedded default risk; align liquidity terms with fund structures; and stress test portfolios against macro-risk scenarios such as rate reversals or slowdown in AI-led capex. Key open questions pertain to whether the investor base can absorb supply as issuance ramps, how rating agencies will adjust for rising PIK usage, and whether regulatory adjustments will lag or force changes in private credit transparency and disclosure norms.