Private credit has been having a rather transatlantic moment. Since IPEM closed, almost every lunch or call I have had has ended up, at some point, as a debrief of IPEM Paris — and, inevitably, a comparison with what people are seeing in the more mature US market.
The timing is rather fitting. New York Fashion Week has just finished and Paris is next — private credit seems to follow much the same circuit, albeit with fewer photographers and rather more leverage.
The US market is older, deeper and generally a few years ahead of us. Europe doesn't simply import American financing models — BDCs alone make the comparison imperfect, before we even get to our very different banking systems and insolvency regimes. But after more than twenty years in European leveraged finance, I have seen this happen often enough. Things start in the US, cross the Atlantic and arrive here a few years later, usually adapted to European realities. Direct lending itself did.
So, after quite a lot of comparing notes over the past few days, these are the five things I would be watching.
For years, particularly in Europe, private credit effectively meant sponsor-backed direct lending. That world hasn't disappeared — far from it — but private credit is becoming a much bigger animal.
In the US, the market has already broadened significantly into investment-grade private credit, insurance capital, credit secondaries and structured solutions. In Europe, ABF, NAV financing, hybrid capital and opportunistic credit are increasingly prominent too. Investment grade may ultimately be the biggest change of all because it takes private credit well beyond the leveraged finance universe and into a vastly larger pool of assets.
And then there are the BDCs. At the end of Q1 2026, 179 US BDCs held approximately $575bn of gross assets. Europe simply doesn't have an equivalent infrastructure.
What I find particularly interesting about BDCs, however, is not just their size. They are one of the few places where we can actually see what is going on. Private credit is, by definition, private. BDCs report publicly, which gives us visibility on valuations, non-accruals and deteriorating credits that we simply don't have across most private debt portfolios.
And what we can see is worth watching. US private credit defaults have recently been running at around 6% on a trailing twelve-month basis. BDCs are not a perfect proxy for the whole market, but they give us a useful window into it. They can also use leverage themselves while investing in corporate loans to businesses which may already be leveraged. When everything performs, that structure is an efficient way of putting capital to work. When credits start going wrong, things become rather more interesting.
That is one reason I watch the US closely. It doesn't just innovate earlier. It tends to expose the stresses earlier too.
This is probably the development I am watching most closely in Europe.
European direct lending has grown to roughly €450bn, yet around 80% of deal flow remains sponsor-backed. I still find that number extraordinary. We have built a very large financing market around a relatively small subset of European companies.
At the same time, LPs are asking managers for greater diversification, including beyond sponsor-backed lending, while study after study continues to identify a financing gap for European SMEs and mid-sized companies. Banks are becoming more selective in parts of that market. So you have borrowers looking for capital and investors looking for somewhere to deploy it. On paper, there should be a very obvious market in the middle.
There is. The problem is that it is a different job!
A sponsor delivers a sophisticated borrower, usually through an organised process, with advisers, diligence and a PE team that knows exactly how leveraged finance works. A family-owned or founder-led business may be excellent, but the financing process can be completely different. The lender may have to originate the opportunity itself, do more of the diligence and spend considerably more time with management. And if the credit deteriorates, there isn't necessarily a sponsor sitting behind the company with another equity cheque.
That additional work comes with an upside. Non-sponsored loans can offer higher spreads, tighter documentation and better lender protections than the fiercely competitive sponsor market.
So I don't think the question is whether European non-sponsored lending grows. The borrowers are there and the capital is there. The interesting question is which managers are actually prepared to build the origination and underwriting capability to connect the two.
This is the one I would put firmly in the "watch this space" category.
Just last week, Tether and Fasanara Capital launched StableFund with $400m of committed capital at launch and an ambition to raise up to $3bn, using stablecoin-enabled infrastructure to finance real-economy SME lending.
I find this particularly interesting because it potentially takes the disintermediation story one step further.
For the past twenty years, we have watched private debt funds progressively disintermediate banks as providers of corporate credit. But the banking infrastructure itself has largely remained in the background: money still has to move, loans have to be funded and capital has to travel between investors, lenders and borrowers.
Stablecoin-enabled private credit raises a different possibility. What if the next stage of disintermediation is not just the lender, but part of the infrastructure itself?
The underlying economics remain reassuringly old-fashioned. An SME needs working capital. Somebody has to originate the loan, underwrite the business and bear the default risk. Tokenising or using stablecoins does not magically turn a bad credit into a good one.
But the rails through which that capital is raised, distributed and ultimately deployed may begin to change.
It is early, and I certainly wouldn't confuse tokenisation with better credit. But if institutional private credit capital can increasingly reach real-economy borrowers through infrastructure sitting partly outside traditional banking rails, that is something I want to understand rather than dismiss as "crypto".
I would watch this one!
The number here caught my attention: private credit secondaries reached approximately $20.4bn in H1 2026, more than double H1 2025 and already above the whole of last year.
Of course, that is still tiny compared with the PE secondary market. But eighteen months ago, private credit secondaries barely featured in these conversations.
One development I find particularly telling is that LPs are increasingly selling private credit positions even when the underlying loans are performing perfectly well. They are not necessarily worried about the credit; they simply need the cash. After several years of weak distributions elsewhere in private markets, that makes complete sense.
And it changes the nature of the market. Private credit secondaries are no longer simply about somebody wanting to get rid of a problematic asset. They are becoming a liquidity-management tool.
Put that alongside NAV financing, continuation vehicles, preferred equity and GP stakes and something broader is happening: liquidity itself is becoming a product in private markets.
I would be very surprised if Europe didn't follow.
Two apparently contradictory things are happening in Europe at the same time.
Historically, around 70% of European private debt transactions have been concentrated in the UK, France and Germany. That is beginning to change, and it probably has to. If European private credit is going to continue growing at anything like its recent pace, part of that growth will have to come from outside its traditional core.
There are already interesting pockets. Poland and parts of CEE are attracting considerably more attention; Iberia has developed quickly; Benelux and the Nordics remain important markets. I would expect the map of European private credit five years from now to look rather less concentrated than it does today.
But moving from London to Warsaw or Milan is not the same as simply adding another sector to a lending strategy. Creditor protections, enforcement timelines, security regimes and restructuring outcomes can change materially from one border to the next.
I became particularly conscious of this working in leveraged finance and restructuring in both Paris and London. Even between France and the UK, the position of a creditor when things go wrong is very different. French sauvegarde, for example, changes the balance of power in a way an English lender cannot simply ignore. Elsewhere, practical issues such as the role of courts or notaries and the time required to realise security can materially change recoveries.
The same company at 4x leverage is therefore not necessarily the same credit in London, Paris, Milan or Warsaw. Jurisdiction isn't a legal footnote to the credit. It is part of the credit risk.
And perhaps that is one reason the European complexity premium persists. The next leg of European private credit growth isn't simply about finding borrowers in new countries. It is about pricing that complexity properly.
And while the geographic market is broadening, the manager universe is moving in the opposite direction.
In 2025, private debt funds of $1bn or more captured 83.5% of all capital raised, despite representing less than a third of funds. We were already talking about this at IPEM last year, but it now feels structural rather than cyclical.
My sense is that the market is separating. At one end are enormous multi-strategy platforms with distribution, insurance capital, infrastructure and the ability to offer almost every flavour of private credit. At the other are specialists who are genuinely very good at one thing — a sector, a geography or a particular type of credit.
I don't think small funds disappear. Far from it. A genuinely differentiated specialist has a very clear reason to exist. It is the middle I would worry about: too small to compete on scale and too generalist to command a premium.
There is an interesting parallel with European banking. Europe is still far more bank-heavy and fragmented than the US, and competition between banks has historically helped keep European corporate borrowing costs down. We have already started to see consolidation. I doubt we have finished.
If both sides of the market consolidate — banks and private credit managers — it will be interesting to see what happens to that historical European pricing advantage.
I can't help thinking back to 2006. I was working on large-cap leveraged finance transactions and the market had become extraordinary. Sponsors were effectively dictating the terms. I remember receiving sponsor term sheets where even trying to mark them up could be badly received. Increasingly, you were expected to sign what was put in front of you. Covenant-lite was everywhere and, if one financing source pushed back too hard, there was usually another one willing to step in.
That was the atmosphere. So, of course, we were asking ourselves whether the LBO market was overheating and whether the next financial crisis might start there. Looking at the leverage, the documentation and the balance of power between sponsors and lenders, it wasn't an absurd question.
Except we were looking at the wrong butterfly!
The flap of the wings that eventually created a hurricane in Europe came from somewhere most of us around those European leveraged finance tables were barely thinking about: US subprime mortgages. Banks failed, funding disappeared and deals stopped. We simply hadn't seen it coming.
And we have had a few reminders since. In 2020, a virus emerging thousands of miles away brought large parts of the global economy to a standstill within weeks. In 2024, a relatively small shift in Japanese monetary policy helped unwind the yen carry trade and sent shockwaves through markets around the world.
That is the financial butterfly effect. The initial event does not need to be financial, or European, to become a European credit event.
Today, the butterfly could be in Tokyo, Washington or the Strait of Hormuz. It could be geopolitical, monetary, technological — or something none of us is looking at yet.
We spend a lot of time looking for the next crack in private credit — defaults, BDCs, refinancing walls, leverage — and rightly so. But history suggests that the next shock to European credit may have absolutely nothing to do with European credit.
In 2006, we were watching LBOs. We should probably have been watching American mortgages. What are we not watching today?
Very happy to continue the discussion — including with anyone who thinks I have got some of this wrong!
