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Global private markets are experiencing a sharp rise in payment in kind (PIK) financing, a trend that is helping private equity backed companies conserve cash but also raising concerns about hidden borrower distress and operational strain, according to new research from Ocorian.

The study, conducted in May 2026 with 300 senior private equity executives managing a combined $3.511 trillion in assets across the U.S. and Europe, found that 86% expect PIK usage to increase over the next two years. Only 14% believe it will remain unchanged.

PIK structures allow borrowers to defer cash interest payments by issuing additional debt or equity instead. While this offers short term liquidity relief, Ocorian’s research shows it may also obscure deeper financial stress. Nine in 10 respondents (90%) said PIK financing is increasingly masking true borrower distress, with 16% strongly agreeing that deferred cash obligations make it harder to distinguish between proactive balance sheet management and severe liquidity challenges.

Anatoly Sorin, UK Head of Loan Agency and Bond Trustee Services at Ocorian, said the findings reflect a market under pressure. “Private equity fund managers are doing everything they can to support portfolio companies through a prolonged period of higher financing costs. However, this flexibility does come with a warning label,” he said.

Beyond credit risk concerns, the study highlights significant operational challenges. As PIK interest compounds, it affects preferred return hurdles, distribution waterfalls, and the calculation of realised versus unrealised gains – all of which determine carried interest.

Only 17% of firms surveyed have automated systems capable of fully modelling PIK compounding. Another 32% rely entirely on external providers, while 39% can model PIK only with substantial manual intervention. Ten percent admitted they currently lack the capability altogether, and 2% said PIK is not yet material enough to justify dedicated systems.

“With PIK structures becoming more prevalent, firms’ operational and technological capabilities must keep pace,” Sorin added, noting that outsourcing to specialist administrators may be necessary to maintain accuracy and transparency.

Abi Reilly, Partner, Regulatory & Compliance at Ocorian, emphasised governance risks. “It is important that firms are able to evidence how these structures are monitored, modelled and reported on, particularly where complexity increases and third party support is involved,” she said.

The research was conducted by PureProfile for Ocorian and included executives from emerging, mid sized, and large private equity firms across major U.S. markets and nine European countries.

Ocorian provides fund services, corporate and trust services, capital markets support, and regulatory and compliance solutions. The firm manages more than 20,000 structures for over 9,000 clients globally.