Private Credit Inflows Plunge as Investors Shift Focus to Real Estate and Infrastructure

Fresh investments into private credit funds declined sharply in the first quarter, as wealthy investors reduced exposure to the asset class amid rising concerns around risk and transparency. Data released by RA Stanger showed that inflows dropped by 45% compared to the same period last year.

The slowdown reflects growing caution among investors, particularly due to concerns that advancements in artificial intelligence could disrupt software-focused businesses. These concerns have directly impacted private credit and private equity firms that had previously financed or acquired such companies during a prolonged low interest rate environment.

Additionally, market participants have raised questions about lending standards and the clarity of valuation methods used in private markets. This has added to investor hesitation and contributed to the decline in allocations.

Sales of non-traded business development companies (BDCs), which pool investor equity and use leverage to lend to private firms, fell to USD 8.9 billion during the quarter, compared to USD 16.3 billion recorded in the corresponding period last year. These vehicles are often used by high-net-worth individuals to access private credit opportunities.

Kevin Gannon, Chairman and CEO of Stanger, stated that the shift away from private credit is no longer gradual but is now clearly underway, indicating a broader change in capital allocation strategies.

In contrast, funds focused on tangible assets saw stronger investor interest. Real estate funds recorded a 26% increase in inflows, while infrastructure funds saw a 14% rise over the same period. These segments are increasingly viewed as more resilient, especially in an environment where technological disruption is a growing concern.

RA Stanger tracks 23 publicly registered BDCs along with 106 privately offered ones, which typically require higher minimum investments. However, its data does not include listed BDCs that trade on public exchanges.

The broader trend also reflects how alternative asset managers have been actively targeting wealthy individuals for capital in recent years. Policy support in the United States, including efforts under Donald Trump to expand access to alternative assets within retirement portfolios, has further encouraged participation in such investment categories.