KEY POINTS

• The current private credit environment reflects cycle normalization, not systemic risk
• Dispersion is increasing—across borrowers, sectors and vintages
• Headlines about redemptions, software disruption and payment-in-kind (PIK) interest are real, but there are nuances
• Manager selection and underwriting discipline will drive outcomes going forward

A Normalizing Cycle

In recent months, private credit sentiment has shifted from enthusiasm to caution as private credit markets adjust after a long period of “easy money.” That environment, characterized by elevated private equity activity and accommodative financing conditions, drove a significant expansion in credit markets. U.S. leveraged buyout (LBO) loan volume has increased significantly, reaching $391.7 billion in direct lending deal volume since the pandemic.⁵ Clearly, this growth has contributed to pockets of overexuberance and potentially less stringent underwriting practices among some investors.

Still, it is important to put the current situation in perspective. Most importantly, it should be emphasized that we do not think that the recent stress in private credit markets is systemic.

Outcomes within direct lending and broader private credit are not uniform. Several factors drive outcomes for investors, including how capital is deployed. Indeed, we believe the current environment is revealing company-specific issues as well as differences in underwriting standards, not a fundamental break in the system. That underscores why the dispersion of returns is increasing across lenders, sectors and vintages.

Market fundamentals remain broadly stable, and private credit as an asset class continues to provide a yield premium relative to public debt. Defaults on loans remain near historical averages, and non-accruals—loans with debt 90 days or more overdue—remain low (see below). Moreover, while private credit assets under management have grown at a CAGR of roughly 14% over the past decade, that still represents only about 9% of total corporate borrowing.⁶

Viewing Risks With Nuance

Investors have become concerned about some sections of the private credit market, however, particularly the impact on software lending of advances in AI, as well as broader macro uncertainty. As a result, redemption activity in a number of strategies has increased modestly, and in response, business development companies (BDCs) and other tender offer and interval funds have limited redemptions. But it is important to note that the elevated redemption activity reflects investor sentiment and allocation shifts, not a deterioration in credit fundamentals.

BDCs—frequently used private credit investments—are designed to help balance investor liquidity needs with the illiquid nature of the underlying assets. These structures are intended to protect long-term investors and preserve portfolio integrity, rather than force asset sales when redemptions occur. That’s why semi-liquid structures like BDCs are designed to better align investor liquidity with underlying assets.

To be sure, as with any investment products, there are always risks to consider when investing in private credit, and the current environment is no exception. While PIK activity—particularly PIK introduced through amendments—can be a sign of credit deterioration, usage has stabilized recently as borrowers’ ability to pay cash interest is improving (see below).

The Bottom Line

We believe private credit continues to provide significant benefits for investors, including diversification, steady income and returns driven by disciplined underwriting and structuring. In our view, the current private credit environment reflects cycle normalization, not systemic risk, and is functioning as intended. In short, we believe private credit is becoming more selective, not less attractive.

Read More in our Alts Quarterly Q2 2026.

ENDNOTES

1. U.S. Energy Information Administration, as of April 7, 2026.

2. Preqin, as of March 31, 2026.

3. Preqin, “Infrastructure in 2026,” as of December 14, 2025.

4. Green Street, as of March 31, 2026.

5. PitchBook LCD, as of March 31, 2026. Data from Q2 2020 through Q1 2026.

6. Preqin Global Report: Private Credit 2026, December 2025.

7. Proskauer Rose, as of March 31, 2026.

8. PitchBook LCD, as of December 31, 2025.

A WORD ABOUT RISK 

As an asset class, private credit comprises a large variety of different debt instruments. While each has its own risk and return profile, private credit assets generally have increased risk of default, due to their typical opportunistic focus on companies with limited funding options, in comparison with their public equivalents. Because private credit usually involves lending to below-investment-grade or non-rated issuers, yield on private credit assets is increased in return for taking on increased risk. 

Investments in real estate-related instruments may be affected by economic, legal or environmental factors that affect property values, rents or occupancies of real estate. 

Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdowns, surplus capacity, increased competition, lack of fuel availability and energy conservation policies. 

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. High-yield bonds are subject to interest-rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision. 

The information in this publication is not and is not intended as investment advice, an indication of trading intent or holdings, or a prediction of investment performance. Diversification does not guarantee a profit or protect against loss. The views and information expressed herein are subject to change at any time. Brookfield disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources; however, Brookfield does not warrant its completeness or accuracy. 

The opinions expressed herein are the current opinions of Brookfield, including its subsidiaries and affiliates, and are subject to change without notice. Brookfield, including its subsidiaries and affiliates, assumes no responsibility to update such information or to notify clients of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice. Past performance is not indicative of future performance, and the value of investments and the income derived from those investments can fluctuate.

FORWARD-LOOKING STATEMENTS 

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Our actual results or outcomes may vary materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements. They are not intended to provide an overview of the terms applicable to any products sponsored by Brookfield Corporation and its affiliates (together, “Brookfield”). Information and views are subject to change without notice. Some of the information provided herein has been prepared based on Brookfield’s internal research, and certain information is based on various assumptions made by Brookfield, any of which may prove to be incorrect. Brookfield may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information included herein, including information that has been provided by third parties, and you cannot rely on Brookfield as having verified any of the information. The information provided herein reflects Brookfield’s perspectives and beliefs as of the date of this commentary.

INDEX PROVIDER DISCLAIMER 

The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and also regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund. Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy. 

Brookfield does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an “as is” basis, make no warranties regarding the same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived from it, and assume no liability in connection with the use of the foregoing. The index sponsors have no liability for any direct, indirect, special, incidental, punitive, consequential or other damages (including loss of profits). The index sponsors do not sponsor, endorse or recommend Brookfield or any of its products or services. Unless otherwise noted, all indexes are total-return indexes.

KEY TERMS AND INDEX DEFINITIONS 

Bloomberg Global Aggregate Index is a market-capitalization-weighted index comprising globally traded investment-grade bonds. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year. 

The Economic Policy Uncertainty Index for the United States reflects scaled frequency counts of articles in 10 leading newspapers (USA Today, the Miami Herald, the Chicago Tribune, the Washington Post, the Los Angeles Times, the Boston Globe, the San Francisco Chronicle, the Dallas Morning News, the Houston Chronicle and the Wall Street Journal). The construction of the modern portion of the index (1985–present) was based on monthly searches of each paper for terms related to economic policy uncertainty. Terms include “uncertainty” or “uncertain,” “economic” or “economy,” and one or more of the following: “Congress,” “legislation,” “White House,” “regulation,” “Federal Reserve,” or “deficit.”

Green Street Commercial Property Price Index (CPPI) is a time-series index published by Green Street, which tracks the value of U.S. commercial real estate properties. The index is based on transaction prices and appraisals of institutional-quality properties across major sectors, including office, industrial, retail and multifamily. It is widely used as a benchmark for changes in commercial property values over time. 

Lincoln Senior Debt Index is a quarterly index that tracks the fair market value of 1,600 middle market, direct lending credit investments every quarter across approximately 175+ fund clients in the U.S. and Europe.

MSCI World Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. 

NFI-ODCE Index is an index of the investment returns (gross of fees) of the largest private real estate funds pursuing a core investment strategy that is typically characterized by low risk, low leverage (less than 40%), and stable properties diversified across the U.S.

Preqin Infrastructure Index captures in an index the return earned by investors on average in their private infrastructure portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

Preqin Private Equity Index captures in an index the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

Preqin Real Estate Index captures in an index the return earned by investors on average in their private real estate portfolios, based on the actual amount of money invested in private capital partnerships. Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter. 

S&P 500 Index is a market-cap-weighted equity index of 500 widely held, large-capitalization U.S. companies. 

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