Institutional investors are tempering their enthusiasm for private credit, even as they continue to allocate capital across private markets. According to the Summer 2026 Global Private Capital Barometer from Coller Capital, only 29% of limited partners surveyed plan to increase their target allocations to private credit over the next 12 months. That marks a sharp decline from 42% in the prior survey six months ago. The findings are based on responses from 108 LPs representing a combined $2.045 trillion in assets under management.
Risk Concerns and Sentiment Shift
The pullback reflects a broader reassessment of risk within the asset class. While 53% of LPs identified isolated pockets of elevated risk in their private credit portfolios, 18% said they believe there is a systemic problem. Only 29% expressed comfort that risk levels align with initial expectations. The survey also revealed gaps in investor understanding: just 49% rated their knowledge of expected loss ratios as good or very good, and 5% described it as poor. Negative media coverage of private credit risks has weighed on sentiment, though 87% of respondents still intend to maintain or increase exposure, suggesting a calibrated retreat rather than a wholesale exit.
Zombie Fund Exposure Expected to Grow
Concerns about zombie funds—vehicles where managers prolong fund life to preserve fee income—are mounting. More than half of LPs (54%) expect the number of zombie funds in their private equity portfolios to increase over the next two years, while 31% expect no change and only 15% anticipate a decline. This builds on 2024 data when 48% of LPs already reported zombie fund exposure. Extended holding periods and elevated entry valuations paid before interest rates rose are crystallizing into a live problem. To manage these situations, 54% of LPs prefer stepping down management fees, while 18% favor restructuring manager incentives. North American LPs are more assertive: 14% would seek to remove the manager, compared with 11% overall.
Geopolitical Factors Vary by Region
Geopolitical uncertainty is influencing allocation decisions more than in the past for 37% of LPs, with no one reporting reduced sensitivity. However, regional differences are stark. Only 23% of North American LPs said geopolitics carries greater weight, compared with nearly half in Europe and Asia Pacific. Despite this, a third of LPs expect to accelerate their pace of commitments over the next two years, and 57% anticipate no change. The survey also found that 23% of LPs plan to reduce the number of GP relationships in their portfolios over the next three years, up from 16% in 2020.
Continuation Vehicles Gain Acceptance
As traditional exit routes remain constrained, continuation vehicles are becoming a permanent fixture. When asked about the balance between liquidity and value creation, 40% of LPs said GPs are striking the right balance, while an equal 40% said GPs are not returning capital quickly enough, and 22% said strong assets are being sold prematurely. Even if exit conditions improve, 40% of LPs expect continuation vehicle activity to keep growing, 29% think it will hold steady, and 31% anticipate a decline. Among secondary market asset classes, private credit is ranked as most likely to see the greatest proportional growth over the next three years, reflecting the expansion of primary private credit and portfolio rebalancing needs.
AI Seen as Cost Tool, Not Alpha Generator
On artificial intelligence, only 22% of LPs believe effective AI deployment by GPs will become a meaningful source of return outperformance within five years. The majority (70%) expect it to function primarily as a cost reduction tool, with 8% viewing it mainly as a risk management application. This contrasts with findings from a BNY Wealth survey showing 96% of ultra-HNW investors use AI weekly, though advisors remain key. The divergence highlights differing perspectives on AI's role in private markets versus wealth management.
The survey also noted that new managers are bearing the brunt of LP caution. A majority across all regions described recently established private credit funds as less attractive over the next two years, a reversal from 2022 when more than half of North American and European LPs viewed new managers favorably. This shift aligns with broader trends seen in the Escalent survey, where affluent investors are cutting alts targets as risk awareness rises.
