Private credit’s next phase — growth under pressure

Over the past decade, private credit has moved from the margins of the financial system to its core: today, it has more than $2 trillion in assets under management (AUM), and our base case growth forecast suggests it could reach $3.4 trillion by 2030¹. A range of factors has driven the momentum, including bank retrenchment, borrower preference for more bespoke structured solutions, and investors’ continued search for yield. With interest rates staying higher for longer, total returns have been attractive, and private credit’s scope has grown. Today, it spans more than simply corporate direct lending. It includes asset-backed finance, infrastructure debt, real estate debt, distressed debt, and speciality finance all taking centre stage. These provide liquidity solutions across a range of risk spectrums and increasingly need structuring, for example to meet insurance capital requirements.

In recent months, the asset class has been in the spotlight regarding borrower defaults and credit losses, increased regulatory focus, and rising redemptions for some funds. All of these events have generated a wave of negative headlines.

What are the broader prospects for private credit, and how will the market for it evolve? To provide context to the latest developments and help answer these questions, PwC conducted a survey of more than 120 credit portfolio managers globally (About the PwC Global Private Credit Survey 2026 for details).

The big takeaway is that respondents remain very positive about future growth in private credit: more than 80% of portfolio managers expect to receive increased allocations over the next 12 months. They are also not overly worried about the current market situation, with just 16% saying they are concerned or very concerned about an increase in private-credit-related defaults and restructurings over the next one to two years. At the same time, their responses underscore that private credit has reached an inflection point. While not in crisis, the asset class is entering its first “test” as a major asset class. It’s feeling the effects of growing competition, and portfolio managers expect borrower defaults and credit losses to affect performance in 2026. They are shifting their focus as a result: at a time of flat or falling returns, they are putting greater emphasis on investment selection, performance, governance, and downside protection.

In this environment, the gap between the best private credit portfolio managers and the rest will increase materially. Winning managers will be those who can demonstrate they have better underwriting, portfolio management, and restructuring capabilities to help deliver attractive risk-adjusted returns through a cycle. In exchange, they will gain investor confidence, setting themselves up for continued strong fundraising and long-term success.

In this report, we look at the shifting market sentiment based on the survey, examine the implications for a variety of credit portfolio managers, and highlight both the major trends affecting the outlook for private credit and the paths to success for an asset class that is continuing to make inroads.

Footnote 1. Estimate from the PwC Global Asset and Wealth Management and ESG Research Centre, based on Preqin data.

After a prolonged period of buoyant returns driven by abundant liquidity, benign credit conditions, and strong sponsor support, private credit is entering a more challenging phase: its first meaningful credit cycle as a high-profile asset class. Following years of intense competition, margins have come under pressure, and portfolio managers have been competing both on margins and terms. This will likely result in lower returns for certain vintages of private credit originations.

For many portfolio managers, this marks the first time they are having to navigate sustained credit stress at scale. The PwC Global Private Credit Survey 2026 highlights that managers expect stress to be most acute over the next one to two years in consumer and retail (say 56% of respondents), automotive (42%), hospitality and leisure (27%), and technology (24%).

The change of context is evident. Two-thirds of respondents (67%) cite greater competition as the primary driver affecting fund performance for 2026, followed by defaults and credit losses (64%) (Figure 1). As a result, 93% of respondents expect flat or lower returns in 2026 (Figure 2). This outlook reflects not only macroeconomic pressure but also underwriting decisions made during periods of intense competition.

Encouragingly, the survey suggests that most market participants are taking the current conditions in their stride. The market need for private credit remains strong, as do many of the underlying conditions that have fuelled its growth. More than half the respondents (55%) say they are not concerned at all or only slightly concerned about an increase in defaults or other restructurings over the next one to two years, compared with 16% of respondents who say they are concerned or very concerned (Figure 3).

This optimistic sentiment translates directly into allocation plans, with four in five portfolio managers saying that they expect allocations to increase over the next 12 months; 44% expect this to increase by more than 20% (Figure 4).

While credit portfolio managers will continue to invest through a cycle, limited partners (LPs) are likely to be more selective of managers to whom they allocate funds. Growth and fundraising momentum continue to be a core focus for credit portfolio managers, but as returns come under pressure, managers will be tested more on their ability to actively manage stress through restructurings and workouts alongside portfolio construction. 

What managers are saying

“Expect a wave of defaults in weaker credits to result in some weaker general partners having significant redemptions. This will remove some of the lower quality and smaller operators, especially those that have over‑concentrated in software or software-as-a-service (SaaS) books.”

Your next move

The dispersion between top quartile and median managers is expected to widen as weaker platforms face defaults and liquidity pressures. Strategies built during the period of intense competition and spread compression are most exposed, particularly where documentation standards weakened or sector concentrations increased.

As private credit portfolio managers, ask the following:

• How confident are you that your default and restructuring playbook as it relates to people, data, and decision rights is fit for purpose to give confidence to your LPs?
• Have you invested in workout and restructuring capabilities to manage the portfolio through a cycle?
• Have you invested in technology driven early warning indicators that give you real-time data that can drive decisions to protect downside risk?

The pressure on returns is not reducing demand for private credit. Instead, it is driving product innovation. Capital is increasingly shifting towards specialist strategies, including asset-backed finance, non-sponsor lending, and the selective use of leverage. Managers are often accepting greater complexity and risk as they enact this shift. In the US, for example, innovative corporate capital solutions that have preferred equity-like characteristics are in demand. Managers are also seeing increasing opportunities to transact more of these deals in Europe; recent examples include deals in the energy and infrastructure sectors. These are often highly structured, with the need for complex accounting and tax considerations.

The PwC survey shows that most portfolio managers continue to target high-single-digit to low-double-digit unlevered internal rates of return (IRR), albeit with plenty of capital either side of this return spectrum (Figure 5).

As already noted in Figure 2, 54% of survey respondents said they are not changing return targets compared to last year, while 38% said they are decreasing them slightly. What is changing is that the opportunity appears to be broadening. Respondents identify senior direct lending, asset-based finance, and specialty finance as the most attractive segments today. But there is growing interest in a range of other types of debt, including mezzanine and junior debt, distressed or special situations debt, real estate debt, and infrastructure debt, which highlights the breadth of liquidity solutions that private credit brings to our global economies. 

Taking a closer look at the survey results highlights some differences between larger asset managers (those with more than $50 billion in AUM) and smaller asset managers (those with less than $10 billion in AUM) (Figure 6). Directionally, it highlights that larger asset managers are targeting lower unlevered IRRs on average than smaller asset managers: 50% of smaller asset managers are targeting unlevered IRRs of more than 11% versus 21% of larger fund managers. However, smaller asset managers have only a slightly higher concern about defaults and losses. What this tells us is that those smaller to mid-sized asset managers believe they can still generate a higher return to their investors net of defaults. Time will tell which asset managers can genuinely realise higher returns and demonstrate true “alpha”.

What managers are saying

“Expect to see an increasing number of names pushing leverage to get to similar returns as we see in the US.”

Your next move

As private credit portfolio managers react to margin compression with greater innovation, these are some of the main questions they need to consider:

• Where are you expanding your fund strategy to diversify and maintain attractive returns?
• Are you able to attract insurance capital to expand into different strategies?
• Do you have structuring expertise and access to the right assets to attract insurance capital to meet their regulatory requirements?
• How much leverage are you prepared to accept to maintain returns in the current environment?

Rising compliance costs, fee compression, and the operational complexity of running multi‑strategy platforms are pushing the industry towards a future with fewer, but larger, managers. Scale is no longer simply an advantage; it is increasingly a requirement. Recent portfolio stress and performance divergences are expected to accelerate this trend.

At the same time, partnerships between private credit and banks are becoming more prevalent. Private credit continues to move into areas traditionally dominated by banks. The combination of both players will allow better lending solutions to be available in the market for customers across a range of asset classes. Private credit can achieve scale by accessing banks’ origination, servicing, and product manufacturing infrastructure. For banks, these partnerships can unlock lending opportunities that would not otherwise exist given regulatory and risk constraints. 

What managers are saying

“The market will continue to consolidate, with increasing M&A and winners and losers based on portfolio stress.”

“As banks continue to partner with private credit firms, more assets will be held off banks’ balance sheets through capital relief trades and pass‑through structures.”

Your next move

As the market continues to grow, how will you position yourself to stay relevant and compete: Will you capture product expansion organically, inorganically, or through partnerships with origination platforms? Main questions include the following:

• What credit capabilities are you lacking to attract and grow LP allocations, by geography or specialist credit niches and asset class? How will you compete or partner with banks across the range of asset class strategies?
• Are you transaction ready in presenting yourself to larger multi-strategy asset managers?
• Can you describe your unique selling point in not only attracting new capital but also remaining attractive to other larger asset managers interested in your capability?

AI is emerging as a potential differentiator among portfolio managers as private credit moves through a more challenging phase of the cycle.

AI is already being used in private credit underwriting, but not for fully autonomous credit approval. Rather, the strongest use cases today are assistive and control oriented. They include making data room summaries, extracting documents, analysing covenants, analysing transaction level cash flow, detecting fraud, screening for anti-money laundering/know your customer, automating workflows, and monitoring portfolios.

The more nascent but fast advancing areas are investment committee memo generation, term sheet drafting, deal structuring benchmarking, and legal clause review. Fully replacing human judgment in credit decisions remains far off. But the firms using AI to augment human performance are moving materially faster, reviewing more deals with the same headcount, and catching more risk issues earlier than their manual process peers. 

The analytical picture is uneven across tasks. Extracting, summarising, and monitoring are relatively mature because the output can be sourced and checked by humans. Cash flow forecasting, portfolio early warning systems, and challenger risk models are also mature in adjacent commercial and SME lending, although private credit specific public evidence is thinner. By contrast, autonomous pricing, covenant negotiation, and deal structure recommendations remain at an earlier stage. That is because first, there is very little clean and structured historical outcome data; second, contracts are bespoke; and third, the requirements for explainability and governance are higher. 

Responses to the PwC survey indicate growing (but still uneven) adoption of technology across private credit platforms. Just over half of respondents (53%) are more frequently implementing new technologies within their private credit investment process, and about the same number (54%) are most likely to use AI in the underwriting process. This reflects a focus on improving consistency, efficiency, and early risk identification. By contrast, only 16% of respondents view AI-enabled portfolio management (for example, monitoring) as a current priority (Figure 7).

The most defensible implementation strategy for a private credit platform today is to use AI to make underwriters faster, broader, and more consistent while keeping final economic judgment with humans. If a task is document grounded and verifiable, AI is usually ready now. If a task depends on complex counterfactuals or legal and economic nuance, firms should treat AI as a high value assistant.

Your next move

The recent focus on AI adoption among private credit portfolio managers has demonstrated the technology’s value to core processes such as underwriting. As AI adoption increases, firms could consider additional use cases where AI can create true differentiation. These could be portfolio management, counterparty evaluation, and credit risk assessment, for example. However, firms should remember that real value depends on the strength of underlying data, well-defined and integrated workflows, and the continued application of human credit judgement.

The rapid growth of private credit and increased participation of retail and insurance capital is raising the level of regulatory oversight of the sector globally. Recent market developments, including some high-profile failures and limits placed by some semi-liquid funds on redemptions, are also serving to intensify the scrutiny.

Regulators across the globe are looking to get a closer understanding of private credit. One example is the Bank of England’s system-wide exploratory scenario taking place through 2026. The Bank of England has indicated that the stress test is designed primarily to enable greater understanding of the sector rather than to design a policy response in the short term.

Elsewhere, regulators are increasingly focused on ensuring private credit operates within a more transparent, institutionally robust framework with strong governance:

• At the international level, the Financial Stability Board is scrutinising the risks from private credit, with a report due later in 2026.
• In the US, the National Association of Insurance Commissioners is reviewing internal credit ratings where they are viewed as overly optimistic in achieving lower capital charges under risk-based capital rules.
• In the EU, respondents expect AIFMD II to become increasingly important; this requires private credit managers to operate more like regulated lenders across areas including leverage limits, risk retention, liquidity reporting, stress testing, redemption controls, concentration limits, and enhanced governance.
• The UK is currently reviewing its regulatory framework for asset managers. It is unclear if this means there will be a divergence in EU and UK regulation.

Together, these regulatory frameworks are materially influencing how private credit products are structured, governed, and distributed. They are also likely to support growth in areas such as asset-backed finance, infrastructure debt, investment-grade private corporate debt, and rated structured products. These are areas in which product design is increasingly being shaped around insurer demand and regulatory eligibility.

While increased regulation raises costs and operational complexity, it is also reshaping market structure and product design. Managers that proactively engage with regulators rather than reacting to regulatory change are expected to benefit over the long term as regulation supports market stability and investor confidence. 

What managers are saying

Respondents link regulatory scrutiny directly to the evolution of private credit investments:

“Private credit is a group of very entrepreneurial firms with large amounts of capital constantly looking for the corners of a market and then filling them out. As such, more and more new products and ideas will come to life. The natural impact of that is increased risk-taking, which in turn should see increased oversight/regulation to prevent bubbles forming.”

Others highlight the growing overlap between private credit and traditional banking activities:

“Private credit will continue to creep into banks’ home turf, with increasing regulatory tightening as a result.”

Your next move

Heightened regulatory scrutiny raises significant questions for credit portfolio managers, including the following:

• Do you have the right understanding of insurance client balance sheet needs, including what is needed from a regulatory perspective in terms of structuring credit products as well as the diligence required?
• Are you confident about how liquidity and gating rights are marketed, particularly to retail investor clients?
• Are you able to articulate to your LPs how you have responded to recent market events such as the SaaS sell-off or high-profile fraud cases, and what controls you have in place to reduce this risk?
• Are you confident that your existing credit risk management, governance, and framework enables you to navigate market risk events? 

In this environment, performance through the cycle, particularly the ability to manage restructurings, protect capital, and maintain investor confidence during periods of stress, is the defining driver of long-term success.

The clear winners will be the private credit portfolio managers that have the following: 

• Scaled, multi‑strategy credit platforms with diversified origination and capital sources
• Strong underwriting discipline and restructuring capabilities that can protect capital through the cycle
• Capability to manufacture product for reinsurance and insurance balance sheets
• Partnerships with banks and non-bank lenders in areas where the managers lack origination and underwriting capabilities
• Adopt AI use cases to enhance underwriting and portfolio management without compromising credit quality

Warren Buffett once famously declared that “you only find out who is swimming naked when the tide goes out.” Private credit will weather this credit cycle and continue its onward march, but in the process, it will mature and change. Right now, its tide is going out, and capital providers will be able to see more clearly which fund managers have what it takes to succeed, including through rougher waters. 

The PwC Global Private Credit Survey 2026 captures insights from more than 120 credit portfolio managers in the US, the UK, Europe, Middle East, Asia, and Australia. It was conducted between January and March 2026. Respondents represent a broad range of investment strategies and AUM and provided both quantitative responses and qualitative commentary to 15 questions.

The size of the current assets under management for their strategy as a portfolio manager ranged from:

• 17% less then $1 billion
• 36% $1-10 billion
• 17% $10-50 billion
• 29% more than $50 billion
• 1% not applicable

PwC Private credit services

PwC's network of firms has Private credit specialists who bring together sector knowledge with best-in-class service offerings to advise banks, insurers, pension funds, asset managers, credit funds, and corporate clients across a range of private credit advisory services. We are grateful to all who contributed to the survey globally covering corporate finance, restructuring, debt and capital advisory, transaction services, risk and regulation, transformation, and tax. 

Our authors would like to acknowledge and thank the following for their contribution to this report:
Waleed Agha, Catherine Atkinson, Ralf Ulrich Braunagel, Erich Butters, Andrew Cooper, Stewart Cummins, Ignacio Morenes De Posadas, Martin Dijkman, Ross Evans, Neil Farmer, Gerald Gonsior, Jason Gunter, Adam Horey, Ben Johnson, Matt Kay, Diederik Kolfschoten, Chiara Lombardi, Nitin Premchandani, Maria Sabattini, Sajan Shah, Nebil Shubbar, Kat Sidorva, Derek Steeden, and Andy Wrout.