Specialty finance takes a fifth of private credit fundraising

Specialty finance has become a serious slice of private credit fundraising. The category — opportunistic credit, real-asset credit, asset-backed finance — accounted for roughly 20% of all private credit raised in 2025, according to Insurance AUM Journal's new essay on manager selection. A year earlier, the slice was 4%.

That jump is the measurable sign of a shift that has been building for years. Direct lending remains the core allocation, the essay says, but institutional investors are increasingly looking past it toward exposures that require more than balance-sheet capacity. In a market with more volatility and wider dispersion in borrower performance, underwriting and manager selection matter more. Specialization is the edge the market is pricing in.

The historical parallel is public credit. Investment-grade bonds gave way to high yield, senior loans, and CLOs as the market segmented. Private credit is following the same path, trading standardized risk-return profiles for returns that depend on expertise, structuring, and credit selection.

The growth in private credit assets under management over the past decade comes as much from banks and other traditional lenders retreating from the business as from investor demand. The assets themselves — corporate loans, real estate debt, asset-backed financing — are familiar. What changed is the breadth of the market and the size of the borrower and investor base.

The essay flags several areas where risk has come into sharper focus. Payment-in-kind structures can give borrowers flexibility, but they often signal financial stress when used to compensate for weakened cash flows. Concentrated sector exposure can leave a portfolio vulnerable to an industry-specific disruption, especially in a sector undergoing rapid technological change. And the mismatch between long-term private assets and investor redemption expectations has not gone away.

For insurers, the argument lands with particular force. General accounts are long-duration, liability-aware investors that can hold illiquid assets, but they are also subject to regulatory capital treatment and rating agency scrutiny. The move toward specialized private credit is not a bid for yield alone; it is a bet on manager skill in a market where the easy gains from simply being in direct lending have been competed away.