Will private credit face a reality check in 2026? 

Private credit has been the silent success story of global finance for the last decade. With traditional banks facing various constraints, funds took over that vacuum and provided flexible capital where traditional lenders couldn't go.  

Now, the asset class is dominating headlines. Forecasts suggest it could reach US$4.5 trillion in AUM by 2030. High interest rates have only advanced that trend since 2021, creating stronger yields and attracting new institutional investors.  

Today, the focus is turning from growth to governance. The main question is whether private credit can sustain its success under scrutiny and new guardrails.  

The driving forces behind private credit

Private credit’s success arose from a historic opportunity.  

Banks held more capital after the global financial crisis, and following the fallout, they were forced to tighten their lending standards – especially for mid-market and non-investment-grade borrowers.  

At the same time, demand for non-bank capital only increased as private companies remained unlisted for longer. "Jumbo" direct lending deals, facilities above £1 billion, became commonplace and private credit started to enter territory traditionally occupied by syndicated bank lending. 

The risks and intensifying competition 

Private credit is considered attractive due to the high yields. Floating-rate structures track rate movements, offering investors protection against market volatility. Alongside illiquidity and complexity premiums, this has strengthened private credit’s appeal for lenders seeking enhanced yields. The challenge now is that growing capital inflows are driving tougher competition for the best deals. 

For lenders, the focus is on balancing liquidity and discipline, even as deal volumes increase. For investors, it means backing managers with proven track records, robust governance frameworks and clear, consistent reporting. The next phase of growth will be shaped less by the volume of capital deployed and more by how effectively risk is managed. 

A new balance of power

Higher interest rates and tighter liquidity have reshaped the balance between banks and private credit, in many cases allowing private funds to take the lead in setting terms.  

Their ability to move quickly, offer certainty, and structure bespoke solutions often outweighs the appeal of marginally lower pricing for borrowers. But these same advantages have also drawn regulatory attention, with authorities across the EU, UK and US examining the implications of non-bank lending for financial stability and competition.  

The debate is not about curbing private credit’s growth, but about whether greater consistency, resilience and oversight are needed as the sector expands in scale and influence. 

How fund structures are evolving

Behind this transition there is an equally important structural story.  

International finance centres like Guernsey, Jersey, and Luxembourg are at the forefront of private credit’s development, combining tax neutrality, regulatory agility and administrative expertise. Their legal and administrative systems are well-established, allowing managers to launch complex cross-border funds with ease.  

Traditional limited-partnership models still dominate, but innovation is accelerating. The way funds are built is shifting, and managers are increasingly forming more flexible vehicles that can easily accommodate multi-jurisdictional investors.  

Anticipating regulation

Given the notable success of private credit last year, managers will naturally be increasingly cautious about potential regulatory changes in 2026.  

Oversight is inevitable, but the real question is how the industry chooses to use it to strengthen its credibility and resilience. 

For private credit, this could be a real turning point. Oversight is not necessarily a constraint; it can be an opportunity to evidence credibility and maturity. Firms that embrace disclosure, and adopt consistent risk frameworks will not only meet regulatory expectations but also reassure investors who are seeking transparency alongside returns. By setting standards, policymakers can reduce reckless risk-taking while still cultivating innovation. 

Looking ahead

Private credit has moved from the margins to become a core part of global lending, built on flexibility, innovation and attractive returns. 

As the sector enters a more mature phase, growth alone will no longer be enough.  

Increasing regulatory scrutiny and competition will reward managers that prioritise capital discipline, transparency and robust risk controls, exposing those that do not.