Private credit firms in the United States raised more money than they have in two years during the second quarter — but they were far less willing to lend it out, according to new industry data.
North America-focused closed-end direct-lending funds brought in $16.25 billion during the quarter, a dramatic jump from just $1.3 billion raised in the first quarter, according to figures from Preqin. That marked the strongest fund-raising performance in two years for the sector.
Despite that influx of capital, actual lending activity moved in the opposite direction. U.S. direct-lending volume — a measure of how much money private credit funds are loaning directly to companies — dropped roughly 55% compared to the previous quarter. Total loan volume fell to $33.59 billion in the second quarter, down from $74.67 billion in the first quarter, according to PitchBook/LCD data. That represents the lowest level of direct lending since the second quarter of 2023. The number of deals also declined, dropping from 217 to 154.
Direct lenders are private credit funds that provide loans straight to companies — often to help finance buyouts, acquisitions, or debt refinancings — bypassing traditional banks and the broader loan market.
The gap between money raised and money deployed suggests that while investor interest in private credit remains strong, the firms managing those funds are becoming increasingly selective about which deals they will finance.
Jun Li, EY’s global and Americas wealth and asset management leader, attributed the slowdown to several factors, including weaker merger and buyout activity, delays by borrowers, growing competition from the broader syndicated loan market, and more cautious decision-making by private credit managers.
The steepest declines were seen in lending tied to private equity-backed deals, which have historically been a major driver of direct-lending demand. Buyout firms routinely use private credit loans to fund acquisitions, but that category of lending fell to $19.40 billion in the second quarter from $44.61 billion in the first, per PitchBook/LCD data. Lending connected to leveraged buyouts specifically dropped to $9.79 billion from $22.31 billion.
Part of the hesitation among lenders traces back to loans made during the 2021-2022 boom period, when interest rates were lower and lending terms were more relaxed. As rates climbed higher, many borrowers have struggled to keep up with payments, prompting lenders to push for better pricing and tighter protections on any new deals they consider.
Some firms are also dealing with stress in their existing loan portfolios. Bryant Riley, chairman and chief executive of B. Riley Financial, noted that older loans are showing signs of strain, leading some business development companies to hold onto cash in case troubled borrowers need additional support rather than deploying it into new lending.
Private business development companies have also faced requests from investors to pull their money out, while many publicly traded BDCs are seeing their shares trade below the actual value of their assets — making it harder for them to raise new equity capital.
Looking ahead, EY’s Li offered a longer-term perspective: “Over the long term, investors are likely to place greater value on underwriting quality and risk-adjusted returns than on deployment speed alone.”
