Key Takeaways
- • Average leveraged buyout deal size in direct lending rose 29 percent in 2025 to approximately $380 million, up from roughly $295 million in 2024 and $200 million in 2020, according to McKinsey's 2026 Global Private Markets Report.
- • The top 25 managers in closed-end private credit fundraising captured approximately 72 percent of total capital raised in 2025, while closed-end direct lending fundraising fell 28 percent year over year.
- • Global new-issue direct loan median spreads compressed 172 basis points from their March 2023 peak of 716 bps to 544 bps at year-end 2025, per the Kroll StepStone Private Credit Benchmarks cited by McKinsey.
- • Proskauer data shows covenant-lite deals rose to 21 percent of 2025 direct lending transactions from 4 percent in 2023, with 91 percent of those covenant-lite deals involving EBITDA above $50 million.
- • Lower middle market companies with $10 million to $25 million in EBITDA remain structurally incompatible with mega-fund deployment requirements, per the article's analysis of Lord Abbett's segmentation.
Summary
An ABF Journal analysis argues that the private credit market is polarizing into a "barbell" structure. Mega-funds with hundreds of billions in assets under management and portfolios of several dozen positions are gravitating toward transactions that rival the broadly syndicated loan market in size, while specialized lenders find the lower end of the middle market less crowded than five years ago. The article attributes this primarily to portfolio construction arithmetic rather than interest rates or regulation.
According to McKinsey's 2026 Global Private Markets Report, average LBO deal size in direct lending reached approximately $380 million in 2025, a 29 percent increase. The top 25 managers captured roughly 72 percent of closed-end fundraising, and the seven largest platforms grew AUM at about 20 percent annually from 2022 through 2025. McKinsey also reported roughly $37 billion of broadly syndicated loan volume refinanced into direct lending in 2025, while $34 billion moved in the opposite direction, which the article describes as near-parity and a break from prior one-directional flows.
Pricing has compressed at the upper end of the market. Per the Kroll StepStone Private Credit Benchmarks, global new-issue direct loan median spreads fell from a 716 basis point peak in March 2023 to 596 bps at year-end 2024 and 544 bps at year-end 2025. Proskauer's 15th Annual Private Credit Insights Report, based on more than 450 deals closed in 2025, found covenant-lite penetration rose to 21 percent from 4 percent in 2023, with 91 percent of those deals involving companies with EBITDA above $50 million. Ares Capital Europe VI, which closed at \u20ac17.1 billion in LP commitments, is cited as an example of the scale differential, with total available capital for the strategy reaching approximately \u20ac30 billion including leverage.
The article contends that the lower middle market, which Lord Abbett defines as companies with $10 million to $25 million in EBITDA, is structurally distinct. Lord Abbett identifies more than 200,000 U.S. businesses as potential direct lending candidates. The article argues that a $15 billion-plus fund targeting 30 to 40 positions needs average commitments well above $300 million, making lower middle market deals impractical for such platforms. The article acknowledges that spread data specific to sub-$100 million EBITDA credits is not uniformly reported across public sources, and its argument on pricing in that segment rests largely on structural logic.
According to McKinsey's 2026 Global Private Markets Report, average LBO deal size in direct lending reached approximately $380 million in 2025, a 29 percent increase. The top 25 managers captured roughly 72 percent of closed-end fundraising, and the seven largest platforms grew AUM at about 20 percent annually from 2022 through 2025. McKinsey also reported roughly $37 billion of broadly syndicated loan volume refinanced into direct lending in 2025, while $34 billion moved in the opposite direction, which the article describes as near-parity and a break from prior one-directional flows.
Pricing has compressed at the upper end of the market. Per the Kroll StepStone Private Credit Benchmarks, global new-issue direct loan median spreads fell from a 716 basis point peak in March 2023 to 596 bps at year-end 2024 and 544 bps at year-end 2025. Proskauer's 15th Annual Private Credit Insights Report, based on more than 450 deals closed in 2025, found covenant-lite penetration rose to 21 percent from 4 percent in 2023, with 91 percent of those deals involving companies with EBITDA above $50 million. Ares Capital Europe VI, which closed at \u20ac17.1 billion in LP commitments, is cited as an example of the scale differential, with total available capital for the strategy reaching approximately \u20ac30 billion including leverage.
The article contends that the lower middle market, which Lord Abbett defines as companies with $10 million to $25 million in EBITDA, is structurally distinct. Lord Abbett identifies more than 200,000 U.S. businesses as potential direct lending candidates. The article argues that a $15 billion-plus fund targeting 30 to 40 positions needs average commitments well above $300 million, making lower middle market deals impractical for such platforms. The article acknowledges that spread data specific to sub-$100 million EBITDA credits is not uniformly reported across public sources, and its argument on pricing in that segment rests largely on structural logic.
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