Fundraising for institutional debt funds reached $234bn (£174.6bn) in 2025, with direct lending continuing to dominate after raising $111bn, according to new research.
In its annual private debt fund update, Morningstar DBRS reported that debt fundraising from institutional investors remains steady, with 2025 marking the seventh consecutive year in which at least $200bn in capital has been raised.
The data showed that capital raised for institutional debt funds was slightly down in 2025 compared with $241bn in 2024. The highest level of fundraising for private debt funds came in 2021, when $322.5bn of institutional capital was raised.
Read more: LTAFs gain ground as retail access to private markets widens
Morningstar DBRS also highlighted that in 2025 capital was consolidated into larger funds, as the number of funds receiving capital declined significantly to 200, down 61 per cent from 2021 and 35 per cent from 2024.
The data suggested that direct lending has continued to hold the top position for debt fund fundraising, accounting for 47 per cent of total strategies. However, Morningstar said there has been an uptick in capital raised for distressed debt and general debt strategies.
The firm also pointed to a regional bifurcation. North America remained by far the region with the largest share of capital raised, but Europe began to play a more dominant role in 2025, accounting for 34 per cent of funds raised.
Another trend highlighted in the data was the broadening investor base of private credit funds, with retail investors (15 per cent) and insurance capital (seven per cent) now contributing substantial inflows into perpetual vehicles.
Read more: Private credit ELTIF launches outpace private equity
The fundraising data comes amid recent jitters in the private credit market due to the sector’s exposure to software companies and concerns about the impact of artificial intelligence. At the same time, US wealth clients have increasingly been requesting redemptions of their investments.
Morningstar said it expects weaker borrowers and increased leverage to put pressure on the sector going forward. However, it added that fund-level credit ratings remain stable due to managers’ ability to source and originate sound assets.
“Deterioration in underlying portfolio companies’ performance poses a risk, resulting from uncertain macroeconomic conditions and more vulnerable underlying borrowers,” said Manna Cheung, vice president, US structured credit ratings, funds. “We will continue to monitor our credit ratings on various investment debt obligations, but fund managers that are better positioned to face these threats have strong underwriting and risk processes to manage their funds without excessive leverage and have adequate cushions to absorb potential losses.”
Read more: European structured finance resilient despite ME conflict
