Stable sector exposure, tightening spreads, and a widening gap between fund and holdings risk.

Executive Summary: Private Credit Fund Sector Exposure and Credit Risk in 2026

Credit Benchmark’s 2026 review of 20 major US private credit funds finds sector exposures concentrated in Technology, Business Services, and Health Care, credit quality skewed toward the ‘b’ category, and loan spreads narrowing even as default risk drifts higher.

• Sector concentration: Technology, Business Services, Health Care, and Financials remain the favoured sectors, with exposures broadly stable but highly diverse across the 20-fund sample.
• Credit quality: The largest single credit category is ‘b+’, accounting for roughly one in three loans; 64% of borrowers sit in the ‘b’ category overall.
• Spreads narrowing: Typical gross loan spreads have fallen to 4%-5%, down about one percentage point on 2025, even as more than 15% of loans now carry rates above 8%.
• Default risk vs. BDC risk: Fund holdings show typical default risk of 4.5%-6.5%, far above the sub-0.5% typical for BDCs themselves — a gap that hinges heavily on assumptions about recovery rates and liquidity premiums.
• Bank exposure: The FSB estimates direct bank lending to BDCs at $200bn-$400bn, a small share of bank capital, though indirect exposure via fund finance and revolving credit could be materially larger.

Introduction to Private Credit: Market Size, Bank Exposure, and Default Risk

Credit Benchmark aggregates real-world credit risk views contributed by more than 40 leading global financial institutions, translating them into consensus probability-of-default (PD) and credit category data across corporate, financial, and sovereign entities. Risk teams use this data for counterparty exposure limits, watchlist triggers, portfolio monitoring, and underwriting benchmarks — applications that are increasingly relevant to private credit, where public ratings and market pricing are scarce. This report applies that consensus framework to the private credit fund sector.

• Market size: The Financial Stability Board (FSB) defines “Private Credit” as nonbank direct lending to medium sized companies negotiated on a bilateral basis. This segment is US-centric (75% of assets), but globally more $2trn is held by around 2000 specialized funds. BDCs provide about one-third of overall US Private Credit lending, and the top 25 BDCs represent more than two-thirds of this.
• Systemic risk: Regulators have highlighted the issue of banks lending to private credit funds as possible source of systemic risk. While the FSB estimates direct bank lending to BDCs in the range $200bn – $400bn (a very small % of bank capital), this could be materially boosted by indirect lending – fund finance, revolving credit for underlying borrowers, and bank/asset manager collaborations.
• Investor base: Although illiquidity is a concern for retail investors after recent high profile redemption freezes, the main investors are Pension Funds and Insurance Companies that hold about 40% of Private Credit funds as long term investments to specifically earn a liquidity premium.
• Default rates: Fitch recently reported Private Credit defaults at a record 6%, but this may be an underestimate – loan “amendments” and PIK conversions may be masking the true default level. PIK use has more than doubled since 2022. However, Proskauer report that while around 1 in 5 deals are “Cov-Lite”, 90% of these had EBITDA of more than $50m. They also report defaults at a much lower 2.5%
• Report scope: This report shows current sector and underlying credit exposure profiles for 20 major private credit funds based on March 2026 10-Q filings posted in the SEC EDGAR database. Derived from this, the 2026 Credit Benchmark sample covers more than 6,000 loans and 667 unique borrowers.

Sector Profile of the 2026 Private Credit Loan Universe

The chart shows median sector exposures across the universe of 20 private credit funds, concentrated in Technology, Health Care, and Business Services.

Median Sector Exposure Across 20 Private Credit Funds

• Sector concentration: Largest exposures are in Technology, Health Care, and Business Services.
• Year-on-year shift: These sector weights show little change over the past year, aside from a switch of a few percentage points from Industrials (down) to Business Services (up).
• Understated Technology exposure: Business Services also captures some software and computing activity, so headline Technology exposures may be understated.

Sector Exposure Ranges Across Private Credit Funds

Beyond median exposures, the range of sector weightings across the 20-fund sample reveals where private credit managers most diverge in positioning.

• Technology and Business Services: These sectors combine the largest median exposures with the widest ranges; even the lowest-exposed fund holds more than 5% in each.
• Capex and Consumer Goods: Median exposures are low, but ranges are wide and skewed — some funds hold close to zero, others as much as 25%.
• Low-opportunity sectors: Energy, Real Estate, Telecom, Transport, and Utilities show very low medians and ranges — a landscape dominated by large, well-funded corporations with limited private credit lending opportunities.
• Stability year-on-year: Medians and ranges are similar to 2025, suggesting new loan sector splits remain broadly in line with existing fund profiles.

Median Sector Exposure Ranges Across 20 Private Credit Funds

Default Risk Correlations by US Industry

Using monthly default-risk changes, Credit Benchmark’s correlation analysis shows how credit risk co-moves across US industries over a rolling 24-month window.

24-Month Default Risk Correlations by US Industry

• Technology: As the largest Private Credit exposure, Technology shows low or negative correlations with most other industries.
• Health Care: A highly diverse sector spanning petrochemicals, textiles, technology, and insurance inputs, Health Care shows medium-to-high positive correlation with Basic Materials, Consumer Services, and Financials.
• Telecoms: Although not a popular Private Credit sector, Telecoms is mainly negatively correlated with most other industries.

Credit Profile of Private Credit Borrowers

Credit Benchmark’s consensus credit categories for the 667 underlying borrowers show a distribution weighted heavily toward the ‘b’ category, with default-rate implications that diverge from other industry estimates.

Distribution of Borrowers by Consensus Credit Category

• ‘b’ category dominance: 64% of legal entities in the borrower sample sit in the ‘b’ category (up on a year ago), implying default rates of 3%-13% per annum.
• ‘c’ category: The source of most defaults, the ‘c’ category represents just 8% of the sample.
• Investment grade and ‘bb’: 21% of entities are in the ‘bb’ category (down on a year ago), with 7% rated investment grade (default rates up to 0.48% pa).
• FSB comparison: The FSB estimates 75% of exposures sit in the B categories, mainly B+, but its sample reports no investment-grade or ‘bb’ exposures — categories that do feature in a number of the EDGAR filings.

Private Credit Loan Spreads in 2026

Across 6,450 loans in the sample, Credit Benchmark’s spread analysis shows spreads over base rate (typically SOFR) narrowing at the median even as the upper tail widens.

Distribution of Loan Spreads Above Base Rate (% Points)

• Median spread: The median sits in the 4%-5% range, down from 5%-6% a year ago.
• Widening upper tail: More than 15% of the 2026 sample carries loan rates above 8%, reflecting the increased use of provisional PIK rates.
• Interquartile range: At 4.5%-6.1%, the range is narrower than before despite the larger sample size.
• Floating vs. base: Private Credit loan rates float against a base rate but are not automatically linked to credit spreads.

Spread vs. Default Risk by Private Credit Fund

Sources: FRED/St Louis Fed, EDGAR, Credit Benchmark

• Methodology: The chart plots weighted average loan spread net of expected loss* against weighted average default risk for each Private Credit Fund (red triangles, letter identifiers). The numbers next to the identifiers show average loan duration (years) for each fund.
• Benchmark curve: It also plots credit-category weighted average OAS against weighted average default risk for a large set of US sector portfolios. The fitted blue curve is for the most recent OAS; the other two lines are the fits for the minimum and maximum OAS ranges over the past year.
• Typical range: Most PC Funds have annual default risk in the range 4.5%-6.5%, similar to 2025. Most of the net* weighted average loan spreads range from 2.25% to 3% with a recovery rate assumption of 65%**. PC fund risks are noticeably higher than even the highest risk US single sector. The fitted risk/return curves suggest diminishing returns as default risk increases.
• Trade-off: If recovery rates are higher, PC funds offer a higher risk adjusted return than traditional corporate bonds. This may be sufficient to compensate for liquidity risk, but it is clear that PC fund assessment is a balancing act between spreads, expected loss, and liquidity.
• Outlier — Fund C: While most plotted risk/return pairs are in a tight cluster, there are clear outliers. Fund C (seen in the Spread vs. Default Risk by Fund chart, above), with 4 year duration, is high risk given the spread being earned; but the blanket recovery rate may be too low.
• Outlier — Fund M: Fund M has low duration with very high spread, but is in the middle of the typical risk range. This may offer a liquidity premium, but the actual recovery rate may turn out to be lower than average.

*Estimated real world PD x assumed LGD subtracted from spread to give expected investment return before fees and retentions.

**To align the majority of these funds with recent OAS spreads, private credit recovery rates are assumed to be higher (65%) than those for typical bonds. This is consistent with the industry claim that recovery rates in these funds have been historically high and broadly consistent with long-term EIB estimates; but recent reports (e.g. Houlihan Lokey) imply that it is trending lower.

BDC vs. Underlying Holdings in Private Credit

Comparing BDC-level ratings with Credit Benchmark’s underlying holdings data highlights a growing gap between headline fund risk and the credit quality of the loans inside those funds.

Credit Profile: BDCs vs. Underlying Holdings

24-Month Default Risk Change

• Sample composition: The BDC profile is based on a sample of 64 funds; the Credit Benchmark sample covers 667 underlying holdings across 20 BDCs and other private credit fund types.
• Category concentration: At the fund level, the Credit Benchmark sample is concentrated in ‘bbb’ categories, while the wider BDC sample includes a few ‘a’ category names and about 20% in the ‘bb’ category.
• Diverging trends: Over the past 24 months, average BDC risk has dropped 5%, while default risk for the holdings universe has increased 12% over the same period.

Note: The holdings universe is based on current exposures in the 20-fund sample. PD changes are based on the subset that have been trading throughout this period. NB: Turnover in PC funds is much lower than mutual funds or hedge funds due to liquidity constraints.

Conclusions: Private Credit Sector Exposure and Credit Risk

Taken together, Credit Benchmark’s 2026 review of 20 US private credit funds points to a market with stable but diverse sector exposure, tightening spreads, and a widening gap between fund-level and holdings-level default risk.

• Sector diversity: Across the sample of 20 US Private Credit funds — a mix of large and specialised managers — sector exposures are stable but show high diversity.
• Favoured sectors: Technology, Business Services, Health Care, and Financials remain the most favoured sectors.
• Correlation patterns: Technology’s default-risk changes are largely independent of other sectors, while Health Care shows material positive correlation with a number of other major industries.
• Credit category: The largest single credit category for fund holdings is ‘b+’, covering about one in three loans.
• Spread trend: Typical gross loan spreads are 4%-5%, down about one percentage point compared with 2025.
• Spread skew: Loan spreads have become more positively skewed, with a growing share above 8%, reflecting increased use of PIK clauses.
• Risk-adjusted spread: Fund spreads adjusted for expected loss range from 2.25% to 3%, with clear diminishing returns to excess default risk.
• Default risk gap: Based on fund holdings, typical default risk ranges from 4.5% to 6.5%, compared with typical BDC default risk of less than 0.5%.
• Key assumptions: Assumptions about recovery rates and liquidity premiums remain crucial to assessing risk-adjusted returns.