By Patturaja Murugaboopathy
June 5 (Reuters) – Private credit’s rapid expansion is losing momentum, with U.S.-focused direct lending issuance slowing in recent months and fundraising still below its recent peak, industry data shows.
PitchBook data indicates new loan issuance by private credit lenders fell to $44.76 billion in the three months ended May 2026, down about 40% from $74.56 billion in the first quarter.
Issuance to private equity-backed borrowers dropped nearly 37% over the same period to $28.5 billion, while direct lending volume tied to leveraged buyouts fell about 34% to $15.15 billion.
The decline suggests the industry is entering a more cautious phase, as managers contend with softer fundraising, elevated redemption requests, closer scrutiny of loan quality and renewed competition from cheaper syndicated loan markets.
Concerns over loan quality have increased after weakness in software debt, a sector widely held across leveraged finance and private credit portfolios.
Data from PitchBook’s Leveraged Commentary and Data unit showed software loans in the Morningstar LSTA U.S. Leveraged Loan Index were down 4.7% year-to-date through May 31, compared with a 1.2% gain for the broader index.
A sustained slowdown in originations could weigh on private credit managers’ earnings by limiting asset growth and transaction fees, particularly if funds facing redemptions preserve cash rather than deploy into new loans.
Early second-quarter filings suggest redemption pressure has persisted.
Blackstone and Cliffwater both capped withdrawals from their private credit funds at 5% after redemption requests exceeded quarterly limits, with investors seeking to redeem 10% of Blackstone Private Credit Fund shares and 17% of Cliffwater’s $31.3 billion fund.
Broader private credit fundraising also remained subdued. Preqin data showed investors committed $45 billion to private credit funds in the first four months of 2026, little changed from $44.5 billion in the same period in 2025 but below the $52.2 billion raised in the same period in 2023.
Retail flows have also softened. Jefferies said private wealth flows across tracked retail alternative products fell 17% month-on-month in May, their second straight monthly decline, with private credit flows down 35%. Private credit flows in the second quarter to date were down 70% from the first-quarter average, the brokerage said.
(Reporting by Patturaja MurugaboopathyEditing by Vidya Ranganathan and Louise Heavens)
