Euro Private Credit GO GO GO

We are starting to allocate more to European Private Credit managers

European Private Credit – Shining Moment?

I was just recently reading a Blackstone newsletter from this week on European Private Credit and it got me thinking about my own portfolio and how I have been allocating it recently. It is especially timely as we internally decide our gameplan of allocations for 2026 and my “best ideas” were half to European private credit managers that are already on our roster.

For a while, Europe felt like the unloved stepchild of global credit markets. They have always been what seems like 20 years behind the U.S. with regards to financial markets. I mean it took me years to try to find fund financing for a well diversified 100+ name Euro private credit portfolio whereas in the U.S. there would have been a dozen lenders wanting to put term financing on these types of private credit assets. The U.S. was surging ahead, while the continent waded through regulation, sluggish growth, and fractured banking systems. But that tide might be turning — and fast. To divulge information on our own portfolio, we now have over 40% of commitments allocated to European-based managers.

European economies have spent the better part of a decade underperforming. Now, with fiscal stimulus picking up and regulatory reform (slowly) loosening its grip, sentiment is shifting. And in private credit? That shift is already showing up in spreads, structures, and deal flow. There is still additional spread pick up at a minimum of 25bps-50bps to be had in Europe vs the U.S. (and Asia even more so, but that is a topic for another day).

(Picture above is from Blackstone Insights July 2025– please don’t sue me)

Private credit has quadrupled its share of the European LBO market in the last decade. Why? Because banks are pulling back, and sponsors want more flexibility and certainty in funding. This is where private credit shines — not just as a lender, but as a partner that can execute when others can’t (most of you already know this and have heard that exact pitch a million times).

Also worth noting: Europe’s credit markets offer better docs, and less competition among private credit managers, all the things credit investors love. Especially in the upper-middle market, where fewer players are bidding on deals and you’re not in a dogfight over every basis point. Even in the past year with Barings kind of (sort of?) out of the market due to them being raided, this left an even bigger gap of competition. I am still shocked that Barings was the number 2 direct lender in Europe according to their decks over the last 5 years as I would never have guessed that.

Idiosyncratic Risk in Europe

Although my portfolio is weighted ~60% U.S. and ~40% Europe based private credit managers, it does seem like the idiosyncratic risk in my private credit funds I am invested in have been hurt with more mark downs vs the U.S. counter parts. Might that be the valuation guidelines of Euro PC managers? Maybe. I also chalk it up to European managers having been more focused on retail and consumer discretionary borrowers where recovery rates are awful and workouts/restructurings just result in a lot of money for the restructuring consultants and the lawyers. In fact, we have one European private credit manager that has experienced one to many of these. Couple this with the two co-heads near retirement age, and we have already told them we will not be renewing our commitment. This is a relationship that has been in the ground for over 12 years.

But now, European managers are focusing on recurring revenue, cash-flow-rich businesses with pricing power, professional management, and sponsor backing. They're also typically mid-to-upper EBITDA players — the kind that can absorb macro shocks and still hit their interest coverage. We have also made this point in our own side letter docs to exclude the idiosyncratic type businesses that I mentioned in the prior paragraph.

Even better: Europe’s fragmented markets create regional champions with defensible moats — think language, regulation, or local market dynamics. And a whopping 95% of European companies over $100M in revenue are still private. That’s fertile ground for private credit.

Here’s a stat that might surprise you (lol) — Europe’s debt-to-GDP is lower than the U.S., budget deficits are smaller, and household savings are higher. Add to that the recent wave of capital into Euro-denominated ETFs and mutual funds (over €540B in LTM inflows), and you’ve got a region with actual macro stability. A region where there might still be some fed independence in the next 12-36 months.

Governments are also waking up. Defense spending is on the rise (hello, NATO targets), infrastructure plans are being dusted off, and regulatory changes like ELTIF and LTAF are starting to open private markets to more capital. No wonder Cerberus’s pants are moving with all this defense spending ticking up.

Europe might just be the flavor of the month and of course I might have some biases baked in with recent turmoil regarding Federal Reserve drama. But with spreads 25–50 bps wider than the U.S., lower LTVs, and less competition, the setup is compelling, and it is a reason I am allocating more to European private credit managers.

If you’ve been underweight Europe in your private credit allocation, this might be the time to rebalance.