Key Takeaways
- • PIMCO argues that private credit's broader universe, including asset-based finance (ABF) and high-quality consumer and mortgage credit, offers more attractive value and diversification than corporate direct lending.
- • Direct lending faces concentration risk: heavy software exposure and rising portfolio overlap across managers are compressing alpha and constraining relative performance.
- • North American direct lending AUM grew roughly sevenfold, from $93 billion in 2015 to about $644 billion at year-end 2025, according to Preqin.
- • BDCs trade at their largest discount to book value since the post-COVID recovery began, and the share of payment-in-kind loans has risen since 2022, per PitchBook LCD and PIMCO data.
- • Semi-liquid vehicles carry conditional rather than guaranteed liquidity; interval funds offer rule-based redemptions, while non-traded BDCs, private REITs and evergreen funds leave access at manager discretion.
Summary
Concerns about private credit have intensified over weakening credit quality, stale valuations, looser underwriting, redemption risk and AI-driven disruption, according to the PIMCO commentary, with much of the anxiety centred on corporate direct lending and business development companies (BDCs) and semi-liquid vehicles. PIMCO argues this focus misses a broader and more diversified asset class spanning asset-based finance, specialty finance, real estate and special situations, each with distinct risk and return drivers.
PIMCO contends that asset-based finance (ABF) and high-quality consumer and mortgage credit, particularly tied to higher-income households, have offered meaningful diversification and more attractive value than direct lending. ABF is described as less correlated with the corporate earnings cycle and as benefiting from structural downside protection. Recent PIMCO research using public securitized products as rough beta proxies suggests potential ABF risk-adjusted returns are more attractive than direct lending and more resilient in downturns.
On direct lending, PIMCO expects the segment to eventually face a full default cycle. It attributes weaker standards to record fundraising, noting that funds increasingly offer terms comparable to public leveraged finance without meaningful illiquidity compensation. Heavy software exposure and portfolio overlap across managers are seen as limiting performance and alpha. North American direct lending AUM rose from $93 billion in 2015 to about $644 billion by year-end 2025, per Preqin. PIMCO also notes the share of PIK loans in BDC portfolios rose through 2025, and BDCs trade at their largest discount to book value since the post-COVID recovery, per Bloomberg and PIMCO data as of 24 February 2026.
On semi-liquid structures, PIMCO assesses the risk of a systemic bank-run style event as low but says liquidity is conditional. It distinguishes non-traded BDCs, private REITs and evergreen funds, where access sits at manager discretion, from interval funds, which offer capped, pre-determined repurchases. PIMCO stresses that interval funds are less ambiguous rather than more liquid.
PIMCO contends that asset-based finance (ABF) and high-quality consumer and mortgage credit, particularly tied to higher-income households, have offered meaningful diversification and more attractive value than direct lending. ABF is described as less correlated with the corporate earnings cycle and as benefiting from structural downside protection. Recent PIMCO research using public securitized products as rough beta proxies suggests potential ABF risk-adjusted returns are more attractive than direct lending and more resilient in downturns.
On direct lending, PIMCO expects the segment to eventually face a full default cycle. It attributes weaker standards to record fundraising, noting that funds increasingly offer terms comparable to public leveraged finance without meaningful illiquidity compensation. Heavy software exposure and portfolio overlap across managers are seen as limiting performance and alpha. North American direct lending AUM rose from $93 billion in 2015 to about $644 billion by year-end 2025, per Preqin. PIMCO also notes the share of PIK loans in BDC portfolios rose through 2025, and BDCs trade at their largest discount to book value since the post-COVID recovery, per Bloomberg and PIMCO data as of 24 February 2026.
On semi-liquid structures, PIMCO assesses the risk of a systemic bank-run style event as low but says liquidity is conditional. It distinguishes non-traded BDCs, private REITs and evergreen funds, where access sits at manager discretion, from interval funds, which offer capped, pre-determined repurchases. PIMCO stresses that interval funds are less ambiguous rather than more liquid.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.