Private Credit

European Private Credit: From Competition to Consolidation

March 2023 – 4 min read

The combination of a tough macro environment and growing investor demand is creating a compelling opportunity in European private credit—but partnering with the right manager is crucial.

Private credit is a resilient asset class, and one that has held up well historically through multiple recessions and cycles. But the challenges facing private credit today should not be taken lightly given the heightened uncertainty and risky macro environment. Indeed, there is no shortage of questions around what the picture will look like in the months and years ahead—for instance, how long and deep could the downturn be? What path will central bank policy in Europe and the U.S. take going forward? Will companies be able to continue passing through higher costs to customers? Much scrutiny is also being placed on how private credit portfolios will fare going forward, especially as the effects of higher rates filter through the economy. While manager performance can look similar during the good times, a more difficult environment is likely to result in much greater differentiation of performance across the industry.

On the positive side, there are a number of tailwinds creating a compelling opportunity in private credit today. In many cases, investors are getting compensated better than in the past, especially for taking essentially the same risks as a year or two ago. In particular, investors are often getting lower leverage, the potential for higher absolute returns, and access to high-quality deal flow—but the key is partnering with the right manager that takes a conservative and disciplined approach to the asset class.

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