Private credit outlook for 2026: 5 key trends

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As we move into the later stage of the credit cycle, this competition can increase the risk of aggressive underwriting and weaker covenant protections. In our view, these factors could lead to a deterioration in credit quality in the direct lending market. To mitigate these risks, investors may benefit from broadening their focus to other segments of private credit that: 1) skew to higher-quality profiles, 2) provide more consistent covenant protection, and/or 3) offer more compelling risk-return profiles due to a funding gap that private credit can help fill with lower competition.

Theme 4: Growing demand from retail and wealth investors

From an allocator’s standpoint, asset owners seem to be looking to diversify their public-market exposures and capture the potential for illiquidity and complexity premia in private credit markets. We are also seeing rising demand from high-net-worth and retail investors. US retail allocation to private credit currently stands at roughly US$0.1 trillion but is projected to grow at an annualized rate of nearly 80% to reach US$2.4 trillion by 2030.¹

Another example of this trend is in interval funds, which saw assets grow to nearly US$450 billion by mid-2025, a 16% increase from year-end 2024 and a 77% increase since the end of 2022.² Credit-focused strategies remain the most popular allocation to these vehicles, with assets in semiliquid credit funds climbing to US$230 billion, a 22% increase since the end of 2024 (Figure 3). These funds have historically delivered higher yields than public fixed income by combining floating-rate loans with leverage. Given the current rate environment, it’s important to remember that floating-rate bonds pay interest based on a spread over short-term rates and their income therefore rises when short-term rates are high and falls when rates decline. 

However, though the ongoing Federal Reserve (Fed) rate-cutting cycle will likely reduce income (and returns) from floating-rate credit funds, there is no sign that investors’ appetite for the asset class is waning. These products’ potential to generate income remains valuable, particularly given the illiquidity present in other parts of the market. In response to this growing demand, managers have sought to design solutions that allocate across the breadth of credit markets in both public and private assets.

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Theme 5: The evolving role of banks 

Disintermediation has been a long-standing trend in credit markets as banks have had to reshape their balance sheets due to tighter regulations. However, we believe the role of banks in the credit market remains essential and has simply evolved over the last few years, with further change expected in the future. 

Banks have become major partners to market-based lenders and have significantly contributed to the growth of private credit to date. These partnerships take various forms, including providing financing to market-based lenders, distributing private credit products to their clients, and leveraging their specialized origination and risk-management expertise in certain asset classes. 

Recent data from the Fed (Figure 4) shows a steady increase in loans to non-deposit financial institutions (NDFIs), underscoring banks’ evolving role in credit markets. While this growth reflects higher leverage in the system, it’s notable that these exposures only account for approximately 13% of total loans and leases at US commercial banks. This dynamic highlights two key points:

1. A shift toward market-based lending: Banks are increasingly partnering with private credit managers rather than holding risk directly on their balance sheets.
2. The resilience of the capital structure: Unlike prior cycles, much of the incremental leverage resides with private lenders rather than banks with deposit bases, reducing systemic vulnerability.

As private credit expands, these partnerships will likely deepen, reinforcing banks’ position as facilitators rather than primary risk holders.

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Bottom line on the outlook for private credit

As we head into 2026, we believe private credit will continue to build on 2025’s momentum. Crucially, as the asset class evolves, it appears to be broadening its scope, with new areas of growth emerging based on structural and near-term trends. In our view, this makes it critical for investors to have a holistic view of the opportunity set, deep credit underwriting capabilities, robust resources, and the long-term relationships to navigate the opportunities and risks this market presents.

¹Source: Deloitte Center for Financial Services analysis | There can be no assurance any forward-looking estimates will occur as anticipated. | ²Sources: Morningstar Direct, SEC filings. Data as of 30 June 2025.