Private credit continues to deliver attractive returns for investors across both sides of the Atlantic, even as spreads remain tight in US and liquidity pressures rise across European markets in the third quarter of 2025.
In the third quarter of 2025, European direct lending spreads remained steady, while US spreads tightened slightly, driven by strong investor demand that has kept competition high and margins under pressure, reported CVC Credit.
The asset manager said that private credit remains “robust and in high demand”, with sponsors increasingly turning to both private credit and syndicated loans to finance deals within the third quarter.
“While distress has risen modestly, it remains concentrated in a limited set of sectors,” CVC said. “Recent rate cuts are expected to ease financing conditions, supporting borrowers and potentially spurring incremental buyout activity.”
Read more: US private market assets triple in a decade to $7tn
Meanwhile, Northleaf noted that despite compressed spreads, private credit is outperforming public markets in terms of yield. Senior secured mid-market loans are offering high single-digit gross returns on an unlevered basis, supported by conservative loan structures and robust lender protections.
“Private credit remains resilient and has provided investors with attractive risk-adjusted returns and contractual cash yield,” Northleaf said in its update.
Read more: Barclays: Half of investors eye private credit amid growing alts appetite
Overall, borrower performance remained “resilient,” Northleaf said, although defaults have increased modestly quarter-over-quarter. The trailing 12-month default rate of the US Leveraged Loan Index rose slightly to 1.5 per cent.
Despite the sector’s solid performance, liquidity pressures face private markets managers in Europe, according to a Morningstar report.
A slowdown in fundraising and dealmaking has created a challenging landscape for alternative managers, with a liquidity squeeze reshaping investor strategies, the firm reported.
Traditional exit routes, such as IPOs and strategic sales, have become scarce, leaving capital trapped and investor sentiment muted. Morningstar highlighted the rise of semiliquid funds as a response to this trend.
Read more: Private credit surge sparks split among US pension funds
