European private credit in 2026: Three questions LPs are asking

Last year’s edition of the LP Insights eMagazine on European private credit explored the expansion of private credit beyond direct lending into asset-backed strategies, increasing involvement of institutional capital, and the emergence of new fund structures. Back then, the focus was on growth and evolution, but as we enter early 2026, the discourse has shifted. In the context of higher interest rates, slower exits, and heightened macroeconomic uncertainty, LPs are asking a more fundamental question: How is private credit performing? Recent comparative performance data shows that private credit has outpaced public markets over the past year, demonstrating a modest but stable return in contrast to the volatility observed in public equities. Ahead of SuperReturn Private Credit Europe, this resilience of private credit positions it as a potentially more reliable investment amid market fluctuations.

1. Is private credit holding up, or are the risks simply being delayed?

By most headline measures, private credit has remained resilient. Default rates remain relatively contained, and deal activity has not ground to a halt. Observed default rates across private credit portfolios have generally remained low, around 1-2% through much of 2025, according to the Proskauer Private Credit Default Index [1].

But beneath the surface, pressures are building. Higher financing costs, weaker M&A activity, and delayed exits are testing assumptions made during the most competitive years of deployment. Refinancing risk has moved back onto the agenda, particularly for larger, more leveraged transactions facing near-term maturities.

As David Wilmot, Partner, Apera Asset Management, observed, private credit managers have navigated repeated macro shocks from Brexit to Covid to inflation, and uncertainty itself is nothing new. What matters now is how managers manage through it.

“We’re not underestimating the impact of today’s uncertainty, but it does create an interesting investment environment,” he noted, pointing to continued deal flow and improved terms.

For LPs, the concern is less about an immediate spike in defaults and more about whether stress is being deferred through extensions, amendments, and capital structure adjustments. Recent data shows that headline default rates have remained modest when you factor in selective defaults and liability management exercises, “true” default activity has risen noticeably [2]. One visible signal of this shift is the increasing use of payment-in-kind (PIK) features in private credit documentation, now present in roughly 11% of deals currently valued, suggesting that deferred interest features are becoming more common [3]. While not a default event, PIK allows borrowers to defer cash interest payments, effectively pushing risk further into the future rather than eliminating it.

Portfolio implications for LPs

Taken together, these dynamics have important implications for portfolio construction and manager oversight:

• Headline resilience may mask emerging divergence, as deferred stress works through portfolios unevenly over time.
• Vintage exposure matters: portfolios concentrated in peak-competition vintages with looser documentation may face greater refinancing and amendment risk.
• Manager behaviour becomes critical, particularly the ability to negotiate early, enforce protections and manage credits proactively rather than relying on structural flexibility.

In short, private credit performance has remained resilient so far - but the real test will be how portfolios absorb refinancing pressure and deferred stress as the cycle progresses.

2. Is dispersion finally emerging, and which managers are exposed?

One of the clearest shifts since last year is the growing expectation of wider dispersion. Historically, private credit returns within the same strategy have been tightly grouped. That may now be changing. Higher-for-longer rates, combined with aggressive competition in earlier vintages, are beginning to expose differences in underwriting quality, documentation and downside protection. The rise of special situations and distressed debt strategies, reflected in significant recent fundraising, underscores investors’ expectations that performance dispersion will widen [4].

Emma Bewley, Partner and Head of Credit at Partners Capital, has warned that headline default data may not yet reflect the full impact of today’s environment.

“The risk of rates staying higher for longer suggests there is potential for more issues in private credit portfolios,” she said, adding that wider dispersion of returns is likely.

As a result, LPs are placing renewed emphasis on manager selection, particularly on experience across cycles, restructuring capability and the ability to protect capital when performance diverges.

3. Are managers responding with discipline - or drifting to defend returns?

In response to tougher conditions, most managers are not reinventing their strategies, and LPs are watching closely to ensure they don’t. Instead, the strongest platforms are tightening underwriting standards, focusing on defensible cash flows and prioritising resilience overreach. Sector selection, leverage discipline and documentation strength are once again front and centre.

Mark Brenke, Head of Private Credit at Ardian, has argued that volatility itself can be an opportunity for long-term capital, provided discipline is maintained.

“Uncertainty is usually a source of opportunity,” he said, noting private credit’s ability to negotiate improved risk-adjusted outcomes rather than chase yield.

For LPs, this distinction matters. The next phase of private credit is likely to reward consistency and risk control, not tactical drift. With Europe’s private markets attracting record capital, the winners may be those who combine origination strength with cycle experience, and regulators (e.g., the Bank of England) are watching these portfolios more closely for signs of systemic strain [5].

What this means for private credit in 2026

Private credit remains firmly embedded in institutional portfolios, but the days of uniform outcomes are fading. Growth is giving way to granularity, and selection is becoming as important as allocation. These are exactly the questions now shaping LP decision-making, and they will be at the heart of discussions at SuperReturn Private Credit Europe.

From portfolio resilience and dispersion to manager behaviour and risk management, the event brings together Europe’s leading LPs, GPs, banks and insurers to examine where private credit stands today and what comes next.

Sources:

[1] Proskauer’s Private Credit Default Index Reveals Rate of 1.84% for Q3 2025, Proskauer. https://www.proskauer.com/report/proskauers-private-credit-default-index-reveals-rate-of-184-for-q3-2025

[2] All Eyes on Europe as Cracks Emerge in Private Credit, S&P Global / With Intelligence Private Credit Outlook 2026 press release. https://www.spglobal.com/en/press/press-release/all-eyes-on-europe-as-cracks-emerge-in-private-credit

[3] Lincoln Private Market Index: Covenant Defaults and PIK Usage, Lincoln International https://www.lincolninternational.com/news/the-lincoln-private-market-index-records-another-quarter-of-growth-in-q2/

[4] All Eyes on Europe as Cracks Emerge in Private Credit, S&P Global / With Intelligence Private Credit Outlook 2026 press release. https://www.spglobal.com/en/press/press-release/all-eyes-on-europe-as-cracks-emerge-in-private-credit

[5] Bank of England, System-wide Exploratory Scenario Exercise. https://www.bankofengland.co.uk/news/2025/december/boe-launches-system-wide-exploratory-scenario-exercise-focused-on-private-markets