Capital raising for North American private credit funds recovered strongly during the second quarter of 2026, even as direct lending activity slowed significantly, highlighting a growing gap between investor commitments and the pace at which managers are deploying capital, according to a report by Reuters.
The report cites data from Preqin as showing that North America-focused closed-end direct lending funds raised $16.25bn during the quarter, a sharp increase from $1.3bn in the first quarter and the strongest fundraising performance in two years.
However, loan origination moved in the opposite direction. PitchBook/LCD data shows US direct lending volumes fell by around 55% quarter-on-quarter to $33.6bn, down from $74.7bn in the opening three months of the year. The number of completed deals also declined, falling to 154 from 217, marking the weakest quarter for lending activity since the second quarter of 2023.
The contrasting trends suggest institutional investors remain willing to allocate capital to private credit strategies, even as managers become increasingly cautious about deploying funds amid a more challenging market environment.
Industry observers attribute the slowdown to several factors, including weaker mergers and acquisitions activity, fewer leveraged buyouts, increased competition from the broadly syndicated loan market and a more selective approach to underwriting.
Jun Li, EY’s global and Americas wealth and asset management leader, said the decline reflects a combination of subdued deal activity and more disciplined lending standards across the private credit industry.
Private equity-backed lending, one of the largest sources of demand for direct lenders, experienced the steepest decline. Lending volumes supporting private equity transactions fell to $19.4bn during the second quarter, compared with $44.6bn in the previous quarter. Leveraged buyout financing also dropped sharply, declining from $22.3bn to $9.8bn over the same period.
Managers are also becoming more cautious as loans originated during the low interest rate environment of 2021 and 2022 continue to come under pressure. Higher borrowing costs have increased debt servicing challenges for some portfolio companies, prompting lenders to seek stronger covenant protections and improved pricing on new transactions.
Existing portfolio pressures are also influencing deployment decisions. Some business development companies (BDCs) are reportedly retaining capital to support existing borrowers experiencing financial stress rather than committing funds to new investments.
In addition, private BDCs have faced increased redemption requests, while many publicly listed BDCs continue to trade below net asset value, limiting their ability to raise fresh equity capital.
Despite the slowdown in lending, market participants remain optimistic about the longer-term outlook for the asset class. Li said investors are likely to place greater emphasis on underwriting discipline and risk-adjusted performance than on the speed at which managers deploy capital, suggesting that fundraising momentum could remain resilient even if deal activity takes longer to recover.
