Private credit defaults hit 5-year highs even as fundraising surges
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.
Institutional money keeps coming
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.
