Allocators remain interested in private credit but are asking more questions and taking a more disciplined approach to the asset class
NEW YORK / September 8, 2026 / — As institutional investors look toward 2027, there is a bigger focus on prudence than capturing the next big opportunity. It’s been a rough few quarters for private equity and private credit. Distributions remain persistently low and recent liquidity challenges have left some investors asking whether or not cracks are beginning to show in private credit.
In response, allocators are taking a fresh look at their manager relationships. Secondaries market activity has picked up in both private equity and private credit. GPs report that allocators are asking more questions about DPI, as well as exit plans before they re-up into new funds. For allocators that are in or near their next asset allocation study, there is a greater focus on identifying diversifiers.
In private credit, diversification has included a pivot to asset backed lending or structured direct and co-investments.
Institutional investors have more tools and more options than ever before when it comes to investing in private credit. The real question will be how these opportunities evolve over time.
Data center investing remains front and center
It’s no secret that investing in digital infrastructure whether that be through land, power generation, power transmission, construction, maintenance or cooling are all front of mind for investors at the moment. Hyperscalers are reportedly planning to spend $750 billion on setting up data centers and other infrastructure necessary to power generative AI.
Depending on where investors choose to put their dollars, there is a broad swath of opportunity in this area. Analysts say that the key will be maintaining discipline and being willing to do due diligence rather than getting caught up in the fear of missing out. It’s still early in the development process and we have already been through a cycle of hyperscalers overbuying data center leases only to prune them back later in the year.
Still, significant deals are getting done. Bank balance sheets were the first to fill up with digital infrastructure deals and we are now starting to see more financing come through using 144A bonds, which are available to pension funds and insurers. Both types of investors have increased their private credit investments through these opportunities in recent months.
At the end of August, Sydney-based Iren announced it had secured $4.2 billion through a private credit arrangement with US-based private credit shop Blue Owl and Pimco. The deal combines equipment financing for GPUs with a direct lending underwrite for Iren, creating a relatively unique structure in terms of private credit deals. Blue Owl and PIMCO are covering 90% of the cost of Nvidia Blackwell Ultra GPUs for Iren’s Canadian data center project.
Defaults remain relatively low, payments continue
Despite questions around liquidity, defaults in private credit have remained relatively low hovering between 4-6% over the past two years, according to data from Fitch. Fitch says defaults have tended to happen at smaller issuers, which also means that the impact to institutional portfolios will remain minimal.
Some of the biggest private credit funds are reporting greater stability in recent months. “A week that doesn’t go by where our institutional investors are asking: Is there any discounts to some of the private credit? … But we’ve seen actually a stabilization in terms of credit, and we’re not seeing any real change in the credit quality of payments from our private investments,” said CEO and Chair Larry Fink during BlackRock’s July 15 earnings call.
If stabilization continues and institutions find they can diversify their private credit portfolios with things like asset backed lending alongside traditional direct lending, it’s likely that we will start to see an uptick in private credit fundraising in 2027.
Private credit analysts suggest that we may also see the opportunity set evolve as the economy continues to build out the infrastructure needed for artificial intelligence and companies figure out how to play through persistently higher inflation and higher interest rates. BlackRock reported during its earnings call that spreads in private credit are starting to widen again, which could also lead to new opportunities in private credit as it becomes easier for asset managers to deploy capital.