Private credit: Europe versus the US

Estimates suggest the private credit market will double in value over the next 5-years. It’s attractions remain as strong as ever: potential inflation protection, diversification, potentially attractive risk-adjusted returns, and volatility reduction. With Europe and the US dominating almost 90% of the market, what are the key differences between these regions and where should investors set their focus?

The private credit market

Within the sub-IG corporate lending market, the more mature $3.5 trillion US market dominates being three times larger than the European market. This differential narrows however within the private credit market where the US is only twice as large.

Whilst the overall private credit market could be set to almost double within the next 5-years, Europe could grow faster than the US. In our opinion, this growth will likely come from a narrowing of the disparity between Europe and the US sources of funding. In the US private credit market, almost 80% of lending is provided by capital markets – in Europe this is only 30%. We believe this gap will close with capital markets (private credit) accounting for a larger share of lending.

Europe’s likely expansion will provide opportunities for investors seeking to capitalise on the growth opportunity. An enlarged private credit market in Europe offers origination opportunities, in particular for asset managers with a history and proven expertise within local jurisdictions.

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