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.

25-5015349

Want to read the full article?

View PDF
Headshot of Orla Walsh smiling at the camera.

Orla Walsh

Head of Europe Private Credit Portfolio Management

Important Information

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Forecasts in this document reflect Barings’ market views as of the preparation date and may change without notice. Projections are not guarantees of future performance. The value of investments and any income may fluctuate and are not guaranteed by Barings or any other party. Examples, portfolio compositions, and investment results shown are for illustrative purposes only and do not predict future outcomes. Actual investments may differ significantly in size, composition, and risk. No assurance is given that any investment will be profitable or avoid losses. Currency exchange rate fluctuations may impact investment value.

Investments involve risks, including potential loss of principal. Past performance is not indicative of future results. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

Related Viewpoints