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Event Debtwire Private Credit Forum New York
Core direct lending falls out of favour
by Lisa Fu
As capital flows in and middle market M&A shrinks, private credit managers are looking for new places to invest, said speakers at the Debtwire Private Credit Forum New York
Enthusiasm for US direct lending, the dominant area of private credit over the past few years, was notably absent at this year’s Debtwire Private Credit Forum New York. Instead, private credit managers and limited partners passed the mic to strategies such as opportunistic credit, asset-backed finance and more.
“When people think of private credit, they think direct lending… [to] US-based borrowers in the middle market,” said Christina Lee, co-portfolio manager at Oaktree, speaking on a panel. “That’s probably the largest portion of private credit. But LPs are increasingly looking for something different.”
For both investors and managers, the opportunity in private credit is moving from the USD 1.7tn direct lending market to a greenfield that encompasses a variety of collateral, structures and borrower profiles.
Direct lending is maybe “in the fourth or fifth inning of growth”, said Teddy Desloge, Blackstone managing director and portfolio manager on the firm’s BDCs. In comparison, asset-based finance is probably “in batting practice”. It is a USD 30tn market that finances the real economy in areas like consumer, digital infrastructure, energy transition and more, which used to be serviced by banks, he said.
Yana Morris, chief content officer, Ion Analytics; Jérôme Marquis, head of private credit, La Caisse; Oliver Thym, partner, Thoma Bravo
La Caisse broadens the basket
Canadian investor giant La Caisse, which oversaw more than USD 473bn at the end of 2024, has continued to increase its private credit allocation but is also putting a greater focus on areas outside US direct lending, according to Jérôme Marquis, head of private credit at the firm. In his fireside chat with Ion Analytics chief content officer Yana Morris, Marquis said the institutional investor grew its private credit assets from USD 15bn in 2017 to USD 65bn today. That growth came with a push for diversification into areas such as infrastructure and real estate debt, royalties and asset-backed finance, and capital solutions.
“Direct lending will always be our flagship, but we are not putting all our eggs in one basket — which explains why we have gone beyond direct lending,” said Marquis.
By broadening the horizon and adding to the tool kit, not everything is driven by M&A in La Caisse’s private credit box. This helps with origination and with deployment, according to Marquis.
Capital is flowing into evergreen funds
Speaking on a panel, Brian Stewart, global co-head of corporate debt at Fortress, said: “We’re in an environment this year where I think middle market M&A activity is as low as it has been since 2009. Against that backdrop of low activity, you have most of the capital formation in the industry flowing into evergreen fund structures.”
These evergreen funds are supported by demand from the private wealth channel. Many need to be fully invested and fully levered at all times. This creates a dynamic where there is low deal activity but managers keep raising money and face pressure to deploy immediately.
There is an incentive to do deals for the sake of doing deals, said Oliver Thym, partner at Thoma Bravo, in a fireside chat. So it is possible the current tightening of spreads in the direct lending market is driven by a surge of capital into evergreen vehicles.
Direct lending is maybe in the fourth or fifth inning of growth
Teddy Desloge
BDC portfolio manager
Blackstone
In 2024, middle market direct lending deals were priced at a 200bp premium to upper middle market deals, but the spread has narrowed to 100bp, Stewart said. Upper middle market spreads, likewise, are sitting at a 100bp premium to public markets.
The best opportunity to deploy has now shifted to hybrid capital, opportunistic credit and ABF, said Alexander Popov, head of credit opportunities at Carlyle. There is significant activity in opportunistic credit and Carlyle’s latest opportunistic credit vehicle, which closed on more than USD 7bn late last year, is more than 50% deployed.
Christina Lee, co-portfolio manager, Oaktree; Brian Stewart, global co-head of corporate debt, Fortress; Alexander Popov, head of credit opportunities, Carlyle
Blackstone’s Desloge said that investments which sit between senior debt and common equity — sometimes referred to as strategic value or hybrid capital — have been one of the areas the firm deploys into the most. Hybrid capital provides flexibility and many companies will want this type of junior capital over the next 12-24 months as the interest rate environment stays high for longer than the market expected, he added.
Attendees highlight need to diversify investments
by Madelina Iacob, co-managing editor, Debtwire North America
Debtwire held its annual Private Credit Forum on 26 June at The Pierre Hotel in New York, drawing a wide array of industry leaders to discuss the market. More than 600 delegates attended in person and virtually.
The event featured a full day of panels and discussions, with representatives from leading firms such as Blackstone, The Carlyle Group, Oaktree Capital Management, KKR, Fortress Investment Group, Apollo Global Management, Blue Owl Capital, Proskauer, BlackRock, Hayfin Capital Management, Kirkland & Ellis and TCW Private Credit.
The forum opened with a fireside chat moderated by Yana Morris, chief content officer at ION Analytics, featuring keynote speakers Jérôme Marquis, managing director and head of private credit at La Caisse, and Oliver Thym, partner at Thoma Bravo. The session focused on the pressure evergreen funds face to deploy capital and emphasised the need for diversification in response to slowing M&A activity.
Private credit is flush with capital, and panellists explored how increased competition is leading to spread compression. In the US direct lending market in particular, funds are facing pressure to deploy capital even as deal flow slows.
Industry veterans highlighted how this squeeze is most pronounced in the upper middle market, where private credit spreads are converging with those in broadly syndicated loans.
Panellists discussing the outlook for the maturing US private credit market noted growing demand for complex, tailored deals as platforms diversify beyond traditional LBO strategies.
Other sessions focused on opportunistic credit and explored how higher rates and tighter liquidity are driving activity in special situations and bespoke financings.
Diversification strategies are also being investigated as firms seek resilience against softening deal flow, with an eye on infrastructure, real estate finance and asset-backed lending.
Despite tightening spreads, several executives maintained that private credit still offers attractive returns, especially in niche sectors, such as software or non-sponsor transactions. However, several warned that underlying distress is mounting, with more issuers using payment-in-kind (PIK) interest and facing cashflow constraints.