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European private debt: shifting dynamics

24/04/2020

Our paper examines the main sources of deal flow across Europe’s broad and dynamic private debt markets in 2019, highlighting some of the key observations or themes influencing deal activity in different parts of the market. We also discuss the broad themes that we believe are key to investing in private debt and can help well-positioned lenders access and align opportunities that can deliver the specific outcomes sought by investors.

The Covid-19 pandemic has created unprecedented uncertainty, but even during this time it’s important not to lose sight of the long term.

In an environment of change, the key points of differentiation for lenders will gradually evolve, but we discuss why we believe the following key themes can help lenders capitalise on the best opportunities available in Europe’s private debt markets.

Finding (relative) value in complexity: We have seen a shift towards more complex and bespoke private debt transactions over recent years. Investing in these less-competed, niche opportunities can create scope to diversify private debt portfolios and exploit the ‘complexity’ premiums on offer.

Developing new and innovative financing solutions: We make the case for ‘full spectrum’ lending that leverages a strong, dynamic asset origination capability.

Casting a wider net: We find ourselves not only looking to avoid the popular, overly-competed trades and proactively exploring new and innovative ways to drive value for our investors, but actively building our expertise and resources in other areas of the lending market to position for the next iterations of market development.

Relationships matter: We explain why we have long preferred models of collaboration not competition.

Looking ahead: What to watch (out for)

The factors supporting the growth of private credit in Europe, many of which are multi-year in nature since they are being driven by structural drivers that are expected to persist and evolve over time, remain intact. Although with market dynamics changing, competitive pressures shifting and wider market concerns looming large in investors’ minds, there will be risks to be managed and mitigated where possible.

These aren’t normal times. But by being alive to both the risks and opportunities that such a fast-moving situation can bring in the short term, lenders can help to ensure the best possible outcomes over the long term.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.

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