2025 has been a year of unexpected turbulence and shifting market conditions. Amidst the uncertainty, we believe private credit has once again proven to be a reliable and attractive source of capital.
In the early part of the year, we observed private credit filling the gap to provide financing solutions when public markets were inaccessible. As volatility has receded, we continue to see private equity sponsors and borrowers lean on direct lenders for, among other things, certainty of execution, especially as macroeconomic and policy uncertainty lingers.
We continue to see strength and resilience across our portfolio and believe we are well positioned to navigate the ongoing market dynamics and identify attractive investment opportunities.
Liberation Day Aftermath
Resilient Investor Sentiment. Despite the whiplash of tariff-related headlines, financial markets have largely shrugged off concerns. Following the initial sell-off after the April 2nd tariff announcement, both equity and credit markets staged a full rebound:
- The S&P 500 hit record highs this summer.1
- Leveraged loan spreads are at or near multi-year lows.2,3
- Broadly syndicated loan (“BSL”) primary activity reached an all-time monthly high in July, followed by the busiest August on record.2,4
Year-to-Date Transaction Pulse
M&A / LBO Activity Disappoints. The anticipated uptick in dealmaking has yet to materialize, falling short of investor expectations. Tariff volatility, global macro tensions, and sustained high interest rates have dampened activity. Q2 private credit LBO volume fell 38% year-over-year, marking the lowest quarterly total in five quarters.3 July continued the trend, with LBO volume declining over 40% year-over-year.3 August saw a surge in M&A volume, driven by several large strategic transactions,5 while sponsor-backed deal flow remained muted.
Interest Rate Outlook Sparks Dealmaking Hopes. Investors are now focused on the September Federal Reserve meeting, with a 25-basis-point rate cut widely expected.6 A lower rate environment could ease debt costs and improve transaction economics, potentially enticing dealmakers back to the table. However, we believe a meaningful rebound in sponsor-backed activity is unlikely until 2026.
Corporate and Financial Sponsor Focus Shifts. In response to the slowdown in LBO activity and ongoing uncertainty, we have observed borrowers and sponsors shifting their focus toward tuck-in M&A, strategic capex, and operational improvements. Nevertheless, we continue to see private credit as a preferred source of financing and liquidity for sponsors, demonstrating stability across market cycles.
Rise of Recaps and Continuation Vehicles. Private equity exit activity has slowed, with Q2 exit count declining 25% sequentially and falling short of historical pre-2022 averages.7 Facing a challenging exit environment, sponsors have increasingly relied on dividend recapitalizations to fund LP distributions. Illustrating this trend, direct lenders have completed $15 billion in dividend recaps year-to-date, a 29% increase over last year and a record amount for the period.3
Continuation vehicles are also gaining traction. In 2024, 77 continuation funds closed, raising $39 billion, close to 2021’s peak of $42 billion.8 The momentum continued in the first half of 2025 with $25 billion raised across 54 continuation funds.8 In addition, 70 exits to continuation vehicles have been tracked year-to-date in the U.S., surpassing the 62 recorded in the same period last year.9
Private Credit Snapshot
In the five months following Liberation Day, we’ve seen direct lenders remain open for business, even during April’s volatility. Robust investor demand has been constrained by limited new loan supply which fell over 20% year-over-year in the year-to-date period through July.
This supply-demand imbalance has driven spreads tighter. Large-cap direct lending deals averaged S+4.97% in July, a record low and a 16-basis-point compression since the start of the year.3 This concession underscores the competitive dynamics in private credit and the importance of disciplined underwriting.
What is Brinley Doing?
Brinley takes a proactive approach in evaluating how market conditions, macroeconomic dynamics, and policy developments impact our portfolio. We maintain close dialogue with our sponsor partners and portfolio companies to understand how the fluid conditions are affecting underlying business performance and capital allocation plans.
We believe our focus on defensive industries like healthcare, IT, and financial services has contributed to our portfolio’s resilience. In addition, we believe that our strong sponsor relationships and ability to deploy capital across market cycles position us to consistently source high-quality investment opportunities.
At present, we are focused on maintaining a disciplined and patient approach. We are selectively deploying capital into investments where we believe the risk-adjusted returns are most compelling, while remaining ready to respond when M&A and LBO activity picks up more materially.
Thank you for your continued partnership. We look forward to navigating the road ahead together.
Warm regards,
The Brinley Partners Team
Note: Statements of Brinley’s beliefs or opinions herein represent Brinley’s subjective opinions and views as of the date hereof, not facts, and are subject to change without notice based on market conditions and other factors. Certain statements herein describe the aspirational goals of our investment philosophy and approach to underwriting. However, no assurance is given that Brinley will be able to achieve its investment objectives, generate returns for investors that are commensurate with the risks involved or avoid losses, or that an investor will receive a return of its capital. Past performance is not a guarantee of future results, and all investments are subject to risk, including the complete loss of invested capital. The information herein is provided for informational and educational purposes only. It should not be relied upon as investment advice and does not constitute an offer to sell, or a solicitation of any offer to buy, any securities, including any limited partner or other interests in any fund or investment vehicle sponsored or advised by Brinley Partners, LP or its affiliates.
- Source: S&P Dow Jones Indices, as of 9/5/25.
- Source: Pitchbook LCD August Wrap: Loan rally hits speed bump even as repayments set record, as of 9/2/25.
- Source: KBRA DLD, as of 7/31/25. Note: Private market volume figures have been tracked since 2021.
- Source: Pitchbook LCD July Wrap: Borrower-friendly market spurs loan activity to new record, as of 8/1/25.
- Source: Bloomberg Dealmakers Top $1 Trillion in M&A with Busiest August Since ’21, as of 8/27/25.
- Source: CME FedWatch Tool, as of 9/1/25.
- Source: Pitchbook Q2 US PE Breakdown, as of 7/11/25.
- Source: Preqin $25bn raised by continuation funds in H1, as of 7/22/25.
- Source: Pitchbook PE’s Gap Between Investments and Exits Reaches a Decade High, as of 7/22/25.
Q2 2025 Brinley Market Minute
2025 has been a year of unexpected turbulence and shifting market conditions. Amidst the uncertainty, we believe private credit has once again proven to be a reliable and attractive source of capital.
In the early part of the year, we observed private credit filling the gap to provide financing solutions when public markets were inaccessible. As volatility has receded, we continue to see private equity sponsors and borrowers lean on direct lenders for, among other things, certainty of execution, especially as macroeconomic and policy uncertainty lingers.
We continue to see strength and resilience across our portfolio and believe we are well positioned to navigate the ongoing market dynamics and identify attractive investment opportunities.
Liberation Day Aftermath
Resilient Investor Sentiment. Despite the whiplash of tariff-related headlines, financial markets have largely shrugged off concerns. Following the initial sell-off after the April 2nd tariff announcement, both equity and credit markets staged a full rebound:
Year-to-Date Transaction Pulse
M&A / LBO Activity Disappoints. The anticipated uptick in dealmaking has yet to materialize, falling short of investor expectations. Tariff volatility, global macro tensions, and sustained high interest rates have dampened activity. Q2 private credit LBO volume fell 38% year-over-year, marking the lowest quarterly total in five quarters.3 July continued the trend, with LBO volume declining over 40% year-over-year.3 August saw a surge in M&A volume, driven by several large strategic transactions,5 while sponsor-backed deal flow remained muted.
Interest Rate Outlook Sparks Dealmaking Hopes. Investors are now focused on the September Federal Reserve meeting, with a 25-basis-point rate cut widely expected.6 A lower rate environment could ease debt costs and improve transaction economics, potentially enticing dealmakers back to the table. However, we believe a meaningful rebound in sponsor-backed activity is unlikely until 2026.
Corporate and Financial Sponsor Focus Shifts. In response to the slowdown in LBO activity and ongoing uncertainty, we have observed borrowers and sponsors shifting their focus toward tuck-in M&A, strategic capex, and operational improvements. Nevertheless, we continue to see private credit as a preferred source of financing and liquidity for sponsors, demonstrating stability across market cycles.
Rise of Recaps and Continuation Vehicles. Private equity exit activity has slowed, with Q2 exit count declining 25% sequentially and falling short of historical pre-2022 averages.7 Facing a challenging exit environment, sponsors have increasingly relied on dividend recapitalizations to fund LP distributions. Illustrating this trend, direct lenders have completed $15 billion in dividend recaps year-to-date, a 29% increase over last year and a record amount for the period.3
Continuation vehicles are also gaining traction. In 2024, 77 continuation funds closed, raising $39 billion, close to 2021’s peak of $42 billion.8 The momentum continued in the first half of 2025 with $25 billion raised across 54 continuation funds.8 In addition, 70 exits to continuation vehicles have been tracked year-to-date in the U.S., surpassing the 62 recorded in the same period last year.9
Private Credit Snapshot
In the five months following Liberation Day, we’ve seen direct lenders remain open for business, even during April’s volatility. Robust investor demand has been constrained by limited new loan supply which fell over 20% year-over-year in the year-to-date period through July.
This supply-demand imbalance has driven spreads tighter. Large-cap direct lending deals averaged S+4.97% in July, a record low and a 16-basis-point compression since the start of the year.3 This concession underscores the competitive dynamics in private credit and the importance of disciplined underwriting.
What is Brinley Doing?
Brinley takes a proactive approach in evaluating how market conditions, macroeconomic dynamics, and policy developments impact our portfolio. We maintain close dialogue with our sponsor partners and portfolio companies to understand how the fluid conditions are affecting underlying business performance and capital allocation plans.
We believe our focus on defensive industries like healthcare, IT, and financial services has contributed to our portfolio’s resilience. In addition, we believe that our strong sponsor relationships and ability to deploy capital across market cycles position us to consistently source high-quality investment opportunities.
At present, we are focused on maintaining a disciplined and patient approach. We are selectively deploying capital into investments where we believe the risk-adjusted returns are most compelling, while remaining ready to respond when M&A and LBO activity picks up more materially.
Thank you for your continued partnership. We look forward to navigating the road ahead together.
Warm regards,
The Brinley Partners Team
Note: Statements of Brinley’s beliefs or opinions herein represent Brinley’s subjective opinions and views as of the date hereof, not facts, and are subject to change without notice based on market conditions and other factors. Certain statements herein describe the aspirational goals of our investment philosophy and approach to underwriting. However, no assurance is given that Brinley will be able to achieve its investment objectives, generate returns for investors that are commensurate with the risks involved or avoid losses, or that an investor will receive a return of its capital. Past performance is not a guarantee of future results, and all investments are subject to risk, including the complete loss of invested capital. The information herein is provided for informational and educational purposes only. It should not be relied upon as investment advice and does not constitute an offer to sell, or a solicitation of any offer to buy, any securities, including any limited partner or other interests in any fund or investment vehicle sponsored or advised by Brinley Partners, LP or its affiliates.
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Q2 2025 Brinley Market Minute