Private credit lenders pull back as rising rates and weaker deal flow curb BDC activity
Higher interest rates are improving lending economics for private credit managers, but the sector is not fully converting that backdrop into new business. Publicly traded business development companies linked to major alternative asset managers are making fewer loans as buyout activity stays subdued and banks win deals with lower pricing.
Highlights
- Ares Management, Blackstone, and Blue Owl Capital all reported lower third-quarter lending compared to a year ago amid declining BDC activity.
- Wall Street banks attracted nearly $12 billion in private lending deals by offering lower prices, intensifying competition and limiting private credit firms' capital deployment.
- Private credit managers adopted stricter underwriting due to concerns about software borrower risk and AI disruptions despite the $1.8 trillion industry's favorable rate environment.
Third-quarter lending slows across major BDCs
As reported by Bloomberg, the largest publicly traded business development companies run by Ares Management Corp, Blackstone Inc, and Blue Owl Capital Inc all report making fewer loans in the third quarter than a year earlier. The slowdown comes even as private credit executives continue to tell investors that market conditions for lending remain attractive.The weaker lending volume reflects a combination of sluggish private equity dealmaking and stronger competition from Wall Street banks. Banks are drawing away a record nearly $12 billion of transactions by offering cheaper prices, limiting the ability of private credit firms to deploy capital at the pace they would like.
Competitive and portfolio pressures weigh on the sector
Private credit managers also say they are taking a more cautious approach to underwriting. That restraint follows investor pushback over the industry's exposure to software borrowers seen as vulnerable to disruption from artificial intelligence.For the $1.8 trillion private credit industry, the dynamic highlights a mismatch between favorable rate conditions and actual origination growth. While higher rates can support lender returns, subdued deal flow, tighter competition, and greater selectivity are keeping part of the market on the sidelines.
We have also analyzed Q3 cybersecurity funding, where larger late-stage rounds lifted totals even as deal counts fell.
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