Private credit returns weaken as loan distress deepens, MSCI finds

Private credit funds have marked down more than a tenth of their loans by at least 50%, according to new data released by MSCI, highlighting mounting pressure on borrowers in the $3.5 trillion private credit market.

In a report published on Tuesday, MSCI said loans valued below 50% were a level typically associated with deep distress or risk of restructuring.

The firm noted that a prolonged period of relatively high interest rates had increased pressure on corporate borrowers and weakened repayment capacity.

The findings come as several large private debt managers have already reduced the value of their credit funds in recent weeks.

Major firms including Carlyle, Blackstone, and BlackRock have marked down portions of their portfolios, while regulators continue to warn about systemic risks linked to bank lending exposure to private credit managers.

Loan distress reaches highest level since pandemic

MSCI’s data showed that private credit fund loan writedowns had climbed to their highest level since the period following the COVID-19 pandemic.

The report found that smaller private debt funds were facing the greatest pressure from distressed borrowers.

According to MSCI, 13% of loans held by smaller private debt funds were now valued below 50 cents on the dollar.

The data was collected during the third quarter of 2025, which MSCI said was the latest available reporting period from private credit funds.

The firm also noted that performance reporting in the sector often comes with significant delays.

MSCI said the lag in reporting had contributed to investor concerns in publicly traded credit investment vehicles known as business development corporations, or BDCs.

Investors have increasingly withdrawn from these vehicles amid worries over valuation transparency and delayed updates on underlying loan performance.

Returns weaken amid market pressure

Private debt fund returns also declined sharply during the second half of 2025, according to MSCI’s calculations.

The report showed that returns fell to 1.8% in the fourth quarter of 2025, down from 3.7% recorded six months earlier.

MSCI said its methodology separates investment performance from investor inflows and fund payouts to provide a clearer picture of underlying returns.

The decline in performance reflects the broader pressure facing private credit markets as borrowers contend with higher financing costs and slowing business conditions.

Investors raise transparency concerns

Alongside the report, MSCI conducted a survey that highlighted growing investor unease over access to reliable private market data.

According to the survey, one-third of investors said they did not have access to private market data they fully trusted.

The findings underline broader concerns around transparency and valuation practices in private credit markets, particularly as distress levels rise and reporting delays continue to affect investor confidence.