Private Credit

Direct Lending: Views on the Year Ahead

December, 2025 – 4 min read

Direct lending isn’t fading—it’s evolving. In this Q&A, Orla Walsh shares her insights on growth, competition, and what disciplined managers need to know as the market matures.

Is direct lending losing its luster amid rapid growth and heightened competition?

In our view, no—but the dynamics are shifting. The global direct lending market has grown at an extraordinary pace, attracting record capital and a broader borrower base across North America, Europe, and Asia Pacific. This surge has created new avenues for deployment and unlocked opportunities, but it has also introduced complexity and fueled concerns about whether vulnerabilities are emerging. Heightened competition has led some lenders to stretch on leverage, accept tighter pricing, or relax documentation standards in pursuit of deals—and as the lines between public and private markets blur, headlines have begun to question whether the “golden era” of direct lending is coming to an end.

Yet, sustainable performance in private credit isn’t about chasing momentum; it is about maintaining discipline. The most resilient managers are those who remain anchored to their core strengths and underwriting standards, even as transaction sizes and market pressures increase. To that end, not all direct lending is created equal. The traditional middle market continues to offer compelling risk-adjusted returns, especially in the more conservative parts of the capital structure—namely, first lien senior debt supported by robust documentation and structuring. Despite tighter spreads overall, origination yields have held steady, at roughly 9% for the last 12 months through June1. The market also continues to offer a premium over the broadly syndicated market, to the tune of 100–150 bps in North America and 200–250 bps in Europe2. This suggests private equity sponsors remain willing to pay a premium in exchange for resilience, reliability and certainty of execution.

1. Source: Barings. As of June 2025.
2. Source: Barings, Credit Suisse. As of June 2025.

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Headshot of Orla Walsh smiling at the camera.

Orla Walsh

Head of Europe Private Credit Portfolio Management

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