Geopolitical tension, shifting liquidity expectations, and rising scrutiny on underwriting standards are reshaping how direct lenders operate in today’s market.
At FundForum 2026, Joe Plank, Senior Originator for Global Direct Lending at Barings, breaks down how scaled managers are navigating this climate. And why sponsor networks, portfolio depth, and strategy discipline define the edge in a challenging economic environment.
Sponsor networks as a sourcing engine
The importance of sponsor relationships in a market where selectivity is critical is a central theme throughout the discussion. Maintaining a selectivity rate of around three percent requires a wide origination funnel and predictable sponsor partnerships built over years of consistent execution. In an environment where deal flow is uneven and competition is high, sponsor networks function as a structural sourcing advantage rather than a soft relationship benefit.
Deployment discipline at scale
Another defining feature of scaled managers is the ability to generate proprietary deal flow from within their own portfolios. Around half of Barings’ transactions come from lending to existing businesses, creating sourcing channels that naturally consolidate toward managers with breadth and depth. This alignment between origination cadence and capital formation enables linear, predictable deployment without stretching into situations that compromise underwriting discipline.
Avoiding strategy drift
Strategy drift remains one of the most significant risks in today’s private‑credit landscape. With large pools of capital raised across the industry, some managers may feel pressure to move upmarket or pursue deals outside their core expertise. The European middle market (typically €10 to €75 million of EBITDA) continues to offer a balance of scale and lender control, making it a segment where disciplined managers can deliver stronger risk‑adjusted returns.
The middle‑market advantage
Within this segment, bilateral lending and maintenance covenants provide meaningful control when performance issues arise. These documentary protections are not theoretical; they are practical tools that allow lenders to influence outcomes when businesses face challenges. The distinction between strong and weak managers often emerges in how effectively these protections are used during periods of underperformance.
Evergreen structures and liquidity reality
Liquidity expectations are evolving, but the underlying reality remains unchanged: private credit is fundamentally illiquid. Evergreen structures can offer behavioural liquidity through scale and vintage diversification, yet they cannot alter the nature of loans that often carry seven‑year maturities. A semi‑liquid profile is only achievable when portfolios are broad, diversified, and managed with discipline across vintages, making investor education essential.
Balanced capital formation
A diversified capital ecosystem reduces reliance on any single source of capital: spanning closed‑end drawdown funds, large separately managed accounts, and evergreen formats. This balance prevents pressure to deploy capital in ways that undermine underwriting standards and embeds discipline into organisational behaviour, ensuring origination decisions remain aligned with long‑term strategy.
Information advantage and the road ahead
Looking forward, a return of M&A activity appears increasingly likely as dry powder builds and asset ages rise across private equity and private credit. In the meantime, portfolio monitoring remains a critical focus. Lending to around 120 private businesses across Europe provides access to monthly performance data that offers early insight into real‑economy trends. Technology is becoming a powerful tool for harnessing this information advantage, supporting both sourcing decisions and the management of emerging issues.
