By Patturaja Murugaboopathy
Oct 15 (Reuters) – Private credit direct lenders are raising record sums even as deal activity slows and borrowers return to the banking system’s syndicated loan market, increasing pressure to deploy capital into a shrinking pool of attractive opportunities.
Direct-lending funds raised $129.15 billion in the first nine months of 2026, up 35% from a year earlier and the highest nine-month total in Preqin data going back to 2016.
Estimated third-quarter lending volume, meanwhile, fell 28% year on year to $49.77 billion, according to PitchBook/LCD.
“The fundraising-deployment mismatch increases pressure to put money to work,” said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James.
She said the mismatch reflected a cyclical shortage of attractively priced deals, compounded by competition from the syndicated market, rather than a structural shortage of borrowers.
The divergence is raising questions about how aggressively private-credit managers will compete to deploy capital.
Sinha Haldea said plentiful capital and scarce deals could create pressure to concede on spreads, leverage or documentation.
Private credit gained market share in recent years as borrowers turned to direct lenders for financing that could often be arranged with greater certainty and flexibility than loans distributed through the syndicated market.
That advantage became particularly important when public leveraged-finance markets were volatile.
In 2022 and 2023, more loans migrated from the broadly syndicated market into direct lending than moved in the opposite direction, PitchBook/LCD data showed.
That balance has shifted this year.
Some $16.39 billion of direct-lending loans were refinanced in the broadly syndicated market in the third quarter, compared with just $2.60 billion of syndicated loans moving into direct lending.
Tarek Omar, chief investment officer of Royce Stone Capital, said borrowers able to access both markets would naturally gravitate towards cheaper financing once fees and refinancing costs were taken into account.
“If the borrowers with more alternatives repay, those with fewer alternatives become a greater share of the loans remaining,” Omar said.
That does not necessarily mean the borrowers remaining in private credit are weaker credits, since smaller companies may stay with direct lenders because syndicated financing does not suit their funding needs.
“The real test of discipline is whether they are willing to leave money undeployed,” Sinha Haldea said.
(Reporting By Patturaja MurugaboopathyEditing by Vidya Ranganathan)
