Private credit is scaling faster than its market can comfortably absorb. In its Private Credit Hyperscalers report, Adams Street Partners warns that perpetual vehicles are forcing managers to deploy capital at a pace that risks eroding discipline.

The firm points to the expansion of business development companies as a key driver. Non-traded perpetual BDCs managed by publicly listed private credit firms had amassed about $128bn of net assets by Q1 2025. The six largest products accounted for roughly 72% of that total, underscoring the concentration of capital at the top end of the market.

To remain fully invested, the managers of the four largest perpetual BDCs must deploy around $23bn annually on average, including leverage and net inflows. The largest single BDC is estimated to require about $43bn of annual deployment, equivalent to approximately 27% of total US middle-market direct lending issuance. Adams Street notes that this level of market share makes it increasingly difficult to maintain top-quartile returns.

The report argues that deployment pressure intensifies further when insurance capital is included. Several publicly listed private credit managers now own or partner with life insurers whose general accounts average about $190bn in assets. Assuming a four-year average loan term, Adams Street estimates that the largest insurance-backed platforms must deploy around $47bn annually just to recycle proceeds, before accounting for growth in assets or parallel institutional funds.

According to Adams Street, the scale required to absorb this capital is unprecedented. An annual deployment target of $47bn is comparable to raising and investing a $70bn drawdown private credit fund every three years, nearly three times the size of the largest commingled drawdown private credit fund raised to date.

The report finds evidence that underwriting standards are being stretched. Large direct lending deals that compete with the broadly syndicated loan market show spreads that are 50–100 basis points tighter, loan-to-value ratios 5–10 points higher, and leverage more than 1.0x higher than deals that avoid such competition. Covenant protections are often weaker, and some borrowers are permitted to elect payment-in-kind interest, increasing leverage when cash flows are already under pressure.

Signs of borrower stress are also emerging. Adams Street cites data showing that around 17% of private credit loans have interest coverage below 1x, meaning borrowers are unable to service cash interest. Credit rating agencies have reported rising defaults, increased use of cash-to-PIK conversions, maturity extensions, and debt-for-equity swaps, practices that can delay recognition of underlying credit issues.

The report warns that overlapping exposure across large BDCs could amplify losses if problems emerge in widely held loans. Adams Street argues that institutional investors should look beyond individual funds and assess total deployment across all vehicles managed by a firm, including BDCs, insurance accounts, and separately managed accounts.

Adams Street concludes that scale itself is not the problem. Rather, the risk lies in growth models that prioritise fee-earning assets over underwriting discipline. For institutional investors, understanding deployment pressure and alignment of interests is becoming as important as headline yields in private credit allocations.

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