Private credit's fundraising engine is running at full throttle but the underlying loan books at the industry's biggest players are flashing warning signs that are harder to dismiss with each passing quarter.
A Wall Street Journal analysis published over the weekend found that loan defaults at funds managed by Ares Management, Blackstone, Blue Owl Capital and Golub Capital touched their highest levels since at least 2021.
The findings arrived the same week that Fitch Ratings reported the private credit default rate climbed to a record 6% through Q2 2026, and new With Intelligence fundraising data showed the industry on pace to blow past its 2025 full-year total with five months still remaining.
The juxtaposition captures the central tension now defining the $1 trillion-plus asset class: capital is pouring in at a historic clip, even as the borrowers underpinning that capital are showing increasing signs of distress.
The percentage of defaulted loans at Blue Owl Capital's flagship fund hit 2.8% in the second quarter; its highest in at least five years, the WSJ reported. Nonperforming loans at Ares, Blackstone's Secured Lending Fund, and Golub Capital's BDC also reached five-year highs, exceeding levels seen in 2023 when the Federal Reserve was aggressively hiking interest rates.
Top executives pushed back. Blue Owl co-CEO Marc Lipschultz told Wall Street analysts on the firm's most recent quarterly call that "across our direct lending strategy, credit health remains strong," and said the company had "seen no meaningful change in our watchlist compared with a year ago." Blue Owl, Blackstone, and KKR have each characterized investor concern as media-driven panic disconnected from actual fund performance.
The troubled loans are currently concentrated in healthcare and in businesses exposed to oil-price volatility. The larger concern is whether stress spreads to software companies, which represent 20% or more of the loan books at many funds and are viewed as vulnerable to AI-driven disruption.
The stress in borrower quality is hitting retail investors with particular force, and new data from With Intelligence illustrates how quickly sentiment has shifted.
Total '40 Act private credit assets encompassing BDCs, interval funds, and tender offer funds marketed primarily to individual investors, stood at approximately $654 billion as of Q1 2026, with BDCs alone accounting for $561 billion. But that growth has stalled. Between Q4 2025 and Q1 2026, overall '40 Act assets edged down amid a surge in redemption requests. Redemption requests from the top 10 non-traded BDCs averaged 13% of assets in Q1 2026 and 14% in Q2 2026, according to With Intelligence, forcing most managers to activate redemption gates and restrict investor withdrawals.
The redemption pressure reflects the same loan-quality concerns investors have been reading about. Research published in August 2026 by the Federal Reserve Bank of Boston found that the share of BDC loans structured as payments-in-kind; arrangements that allow borrowers to add unpaid interest to their principal balance rather than pay it in cash — rose from approximately 5.4% in Q1 2022 to 9.8% in Q1 2026, peaking near 9.85% in Q4 2025.
José Fillat, co-author of the Federal Reserve Bank of Boston study, described the PIK usage trend as "a sign of stress," according to Axios, which reported on the research.
Most BDC loans carry floating interest rates, meaning that with the Federal Reserve's benchmark rate currently near 4%, small and mid-sized borrowers are carrying substantially heavier debt loads than when rates were near zero. Those companies have also faced headwinds from tariffs, energy prices, and commodity cost pressures.
Against all of that, the fundraising data from With Intelligence tells an almost contradictory story that helps explain why the industry's biggest players can maintain an upbeat public posture even as their loan books show strain.
Private credit fundraising reached $119 billion in Q2 2026 alone, pushing H1 totals to $190 billion — a 53% increase over the first half of 2025 and already 80% of the full-year 2025 total of $240 billion, according to With Intelligence. Direct lending raised $73 billion in Q2 2026, bringing H1 2026 fundraising to nearly $100 billion and leaving the strategy just $6 billion short of its entire 2025 haul.
That capital is coming predominantly from institutional investors such as pension funds, endowments, and sovereign wealth funds, who are backing large, established managers. While non-traded BDC investors are requesting their money back, institutional limited partners are writing larger checks.
Specialty finance encompassing asset-backed lending and other strategies less exposed to floating-rate borrower stress is attracting particular institutional interest. With Intelligence recorded more than $37 billion in specialty finance final closes year-to-date through Q2 2026.
Ares Pathfinder III, which closed in June 2026 with $8.5 billion in capital commitments, became the largest asset-backed finance fund ever raised, according to With Intelligence. The pipeline reflects where the industry is heading: specialty finance accounted for 23 of the new private credit funds in development as of Q2-end 2026, the largest share of any strategy.
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