Seven in ten institutional investors expect diversification beyond direct lending to become the leading trend across private credit over the next twelve months, according to Rede Partners' Private Credit Market Intelligence Report 2026. The findings point to a significant rebalancing of LP portfolios as the asset class matures and competitive pressures mount on the strategy that has dominated private credit for the past decade.

Direct lending remains a core holding, with 62 per cent of respondents citing it as a primary or secondary portfolio focus. However, the appetite for further growth has stalled: only 6 per cent of investors said they plan to increase their allocations to mid and upper-mid-market direct lending. Rede attributed the shift to spread compression, intensifying competition from banks and other non-bank lenders, and growing concerns around underwriting standards in a market that has expanded rapidly.

The report reveals how far private credit has come as an institutional allocation. The asset class now accounts for 18 to 20 per cent of LPs' private markets assets under management, roughly double the share recorded in Rede's 2022 survey. More than four in ten investors said they plan to increase their overall private credit exposure over the coming year, while just 8 per cent expect to reduce it — suggesting the shift is one of composition rather than retreat.

The beneficiaries of the rebalancing are what Rede terms "satellite strategies." Asset-based finance, capital solutions, special situations and credit secondaries were identified as the main areas of investor focus. These strategies offer differentiated return profiles and, in several cases, lower correlation to the sponsor-backed lending cycle that underpins most direct lending portfolios.

Semi-liquid structures are also gaining traction. Nearly half of investors — 46 per cent — have already invested in evergreen structures with redemption options, while 30 per cent have invested in open-ended structures more broadly. The adoption rate suggests that liquidity innovation is becoming a material factor in how LPs access private credit, particularly as they seek to deploy capital without the long lock-up periods associated with traditional closed-end funds.

For European GPs focused primarily on direct lending, the survey signals a more competitive fundraising environment ahead. Managers may need to demonstrate differentiation through sector specialisation, geographic focus, or complementary strategies to maintain LP support as capital flows toward a broader set of private credit sub-strategies.