Private credit funds hit by tighter lending

Private credit funds are facing mounting funding pressure as borrowing costs rise and banks tighten lending conditions. Lenders are restricting liquidity to the sector, while investors are demanding higher returns to provide capital, the Financial Times reports.

By the numbers: The premium required to lend to private credit funds rose by 0.34 percentage points in 2026 and 0.83 points since the beginning of last year, according to JPMorgan data cited by the salmon-colored paper.

REMEMBER- The sector has been seeing a rise in redemption requests from wealthy investors. Investors are concerned over weak lending standards in private credit after a series of corporate collapses, including Tricolor, First Brands, and Market Financial Solutions. AI disrupting the business models of tech and software sectors is also a major concern.

Banks tighten new commitments

Rising funding costs coincided with a decline in bond issuance by business development companies (BDCs), which act as flagship private credit vehicles. These firms sold around USD 6.8 bn of bonds in 1Q 2026, down 22% y-o-y and 36% from their performance in 2024. “We are staying away from BDCs,” Loomis, Sayles & Company portfolio manager Brian Kennedy told the Financial Times, arguing that the economics don’t compensate for sector risk.

Banks and traditional lenders that provide large credit facilities are also increasing pricing on new commitments. These facilities are critical to the sector’s financing model, allowing funds to borrow against their loan portfolios and amplify returns.

Shorter-dated maturities are gaining appeal

Issuers are currently using shorter-dated maturities to manage interest costs. Blue Owl private credit fund raised USD 400 mn through a two-year investment-grade bond sold directly to Pimco in a bilateral transaction, rather than through a public syndicated offering. Goldman Sachs Private Credit also secured USD 750 mn at a floating rate of 2.55 percentage points above US Treasuries.

Investor due diligence also intensified: “Now it is three weeks of investors underwriting the sectors and the names […] and if you have a position marked at 92 cents on the USD but someone else has it marked at 86, they want to talk to the [transaction] team,” Beach Point Capital’s portfolio manager Benjamin Hunsaker said.

The alternative

Some managers are turning to structured credit markets, where strong demand from insurers and other investors is helping keep borrowing costs lower, Hunsaker said. Blackstone raised USD 450 mn last month through a collateralized loan obligation for its flagship private credit fund, providing a static structure that prevents the manager from trading the underlying assets to boost investor confidence.

THE CLOSING BELL-

The DFM rose 0.3% yesterday on turnover of AED 894.1 mn. The index is down 2.8% YTD.

In the green: Ekttitab Holding Company (+14.8%), Al Firdous Holdings (+14.2%), and Agility The Public Warehousing Company (+7.7%).

In the red: Dubai National Ins. & Reinsurance (-5.0%), National International Holding Company (-4.5%), and Takaful Emarat (-3.7%).

Over on the ADX, the index rose 0.1% on turnover of AED 1.2 bn. Meanwhile, Nasdaq Dubai was up 0.3%.