North American private credit fund managers expect borrower defaults and financial distress to stabilise and gradually improve over the next year, according to research commissioned by Ocorian, a US-based asset services firm.
The survey of U.S. and Canadian managers overseeing about $1 trillion in assets found that 84% expect conditions to improve over the next 12 months, while 10% anticipate little change. Only 6% expect conditions to worsen, suggesting that most managers believe current stress levels are manageable and already reflected in pricing and underwriting standards.
The findings point to a maturing market that is becoming more selective rather than pulling back, the report said. Respondents cited tighter loan structures, closer engagement with borrowers and more conservative deal selection as key factors shaping their outlook.
Managers also expect greater use of payment-in-kind, or PIK, interest, with 90% anticipating some increase over the next two years. Rather than viewing PIK as a fix for troubled loans, respondents described it as a cash-flow management tool that requires closer monitoring and more active oversight.
At the same time, managers expressed concern about risks tied to the sector’s rapid growth. The global private credit market was estimated at about $3 trillion at the start of 2025 and is projected to reach $5 trillion by 2029, according to a report cited by Morgan Stanley. About 71% of respondents said they were very concerned that strong capital inflows could encourage aggressive lending, with the rest describing themselves as quite concerned.
Survey participants also pointed to the limited transparency typical of private credit markets, noting that it can complicate valuations and risk assessments. However, managers said this opacity is a longstanding feature of the asset class and underscores the importance of governance and reporting controls.
All respondents reported heightened vigilance around potential distress, with 55% describing themselves as very concerned. Vincent Calcagno, head of US growth at Ocorian, said the findings show managers balancing growth expectations with risk awareness.
“This is a market that is adapting, not retreating,” Calcagno said, adding that managers are weighing valuations and policy uncertainty alongside continued investor demand.
