U.S. direct-lending volume fell 55% in the second quarter to $33.59 billion, marking the sharpest quarterly decline in over three years even as private credit firms raised substantially more capital, according to Reuters reporting on PitchBook/LCD data.
The divergence between fundraising and lending underscores a fundamental shift in the private credit market: capital continues flowing in, but lenders have become far more selective about where they deploy it. North America-focused closed-end direct-lending funds raised $16.25 billion in Q2, up from just $1.3 billion in Q1—the highest quarterly total in two years. Yet lending moved sharply in the opposite direction, with the deal count falling to 154 from 217 quarter-on-quarter.
Jun Li, EY’s global and Americas wealth and asset management leader, identified several headwinds driving the pullback: softer mergers and acquisitions and buyout activity, borrower delays in decision-making, intensifying competition from the broadly syndicated loan market, and a pronounced shift toward greater selectivity among private-credit managers. The pullback was sharpest in private equity-backed lending, a core source of direct-lending demand, which fell to $19.40 billion in Q2 from $44.61 billion in Q1, according to Reuters.
Part of the caution stems from loans made during the 2021-2022 boom, when rates were lower and lending terms were looser. Higher interest rates since then have made those older credits harder for borrowers to service, pushing lenders to demand better pricing and stronger protections on new deals. Bryant Riley, chairman and chief executive of B.Riley Financial, noted that some older credits are showing strain, leading certain business development companies to preserve cash for troubled borrowers rather than deploying it into new loans.
Private BDCs have also faced redemption requests from investors, while many public BDCs’ shares trade below net asset value, limiting their capacity to raise fresh equity for deployment. Li said the shift reflects a broader market evolution: “Over the long term, investors are likely to place greater value on underwriting quality and risk-adjusted returns than on deployment speed alone,” according to Reuters.
Sources
- Reuters — direct-lending volume Q2 2026 figures, fundraising data, deal count, reasons for pullback from EY’s Jun Li and B.Riley Financial’s Bryant Riley, portfolio stress context
