According to Reuters Breakingviews, the $2.4 trillion private credit industry is undergoing a fundamental shift that will see it become more like conventional public credit by 2026. The sector, led by firms like Ares Management and Blackstone, amassed $543 billion in “dry powder” as of late 2024 and raised $113 billion for classic funds in just the first half of 2025. A key new trend is the explosive growth of “evergreen” retail funds like Blackstone’s BCRED, which raised $48 billion in six months, appealing to wealthy individuals with semi-liquid redemption features. This push for retail money could accelerate further following a August 2025 executive order by President Trump, potentially opening the doors to American retirement savers. Meanwhile, the premium yield private lenders can charge over public markets has halved to around 1 percentage point, squeezing their key selling point.
The Banks Are Back, Baby
Here’s the thing: private credit‘s whole origin story was built on bank failure. After the 2008 crisis and then the pandemic-era paper losses (remember the Twitter deal chaos?), banks were gun-shy. That created a perfect vacuum for direct lenders to swoop in with speed and flexibility, charging a premium for the privilege. They became the cool kids on the leveraged finance block.
But that era is over. Banks have roared back, egged on by hot debt markets and softer capital rules. They’re getting clever, too, structuring deals to match private credit’s appeal—like offering loans that can be drawn down over time for serial acquirers. Look at the financing for Bain Capital’s investment in HSO. That’s a bank-style flexibility play. So now, borrowers can play banks and direct lenders against each other. And they are.
The Retail Money Dilemma
This rush to attract retail investors through evergreen funds is a double-edged sword. On one hand, it’s a massive new pool of capital, with consultancy Oliver Wyman estimating individual wealth allocations to private credit could hit $1.5 trillion by 2029. That’s huge.
But it fundamentally changes the game. These funds allow limited redemptions based on net asset value. What does that mean? It means the funds have to regularly prove their valuations are realistic to financial advisors and regulators. The logical end point? These supposedly “private” loans will need to be more widely traded to provide that liquidity and transparency. You’re basically building a shadow public market. And when you have to mark to market and offer liquidity, that unique, illiquidity-driven premium yield starts to evaporate. It’s a classic case of a product being diluted by its own success.
Where Does The Juice Come From Now?
So if the classic leveraged buyout financing game is getting commoditized, what are these credit giants doing? They’re scrambling for niche edges. Some, like Blue Owl, are pouring money into hard AI assets like data centers—a tangible play with complex financing needs. Others, like Apollo, are using their insurance arm’s balance sheet to craft bespoke deals for bigger, safer companies.
And there’s still room in the small-to-mid market, below the radar of the big syndicated loan desks. But the core, bread-and-butter mega-LBO business? It’s becoming just another item in the toolbox. A recent Breakingviews analysis argued private credit’s main threat is itself, and you can see why. There’s even a growing trend of “covenant-lite” loans in private credit, mirroring the risky public market behavior they were supposed to be an alternative to. Ironic, right?
The Inevitable Squeeze
Step back, and the conclusion is pretty clear. The convergence is happening. The yield premium is shrinking. The capital is abundant, maybe too abundant. And the funding sources are demanding more liquidity. All of this points to one outcome: lower returns.
For institutional investors and pension funds that piled in for those double-digit yields, this is a slow-motion letdown. For the private lenders themselves, the party isn’t over, but the music is definitely changing. They’re becoming more like… well, banks. Or at least, highly sophisticated, marginally-less-liquid versions of them. The unique, bespoke, high-margin aura of private credit is fading, replaced by a tougher, more competitive, and frankly, more boring reality. It was a great ride while it lasted.
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