Direct Lending to some, private debt to others. This byword for the systemic change sweeping the European market is the most significant shift in financing since the introduction of the first collateralised debt funds of the late 1990's. In a short space of time, an attractive new asset class has emerged within Europe with far-reaching consequences to the lender base and opportunities for borrowers. Significant capital is being raised by established managers and new entrants remain hopeful of finding a niche or foothold in a fast developing marketspace.
Simple so far…
Sourcing deals across direct lending with a reasonable prospect of making an investment with the right level of reward and protection is not easy, as many a new entrant will testify. Established investors with a long track-record such as Alcentra have demonstrated the ability to raise capital and deploy it sensibly at a decent rate, both in speed and of return. The exercise is more challenging for newer entrants that have reduced access to market.
Private debt and unitranche are here to stay. As the European market converges towards the US market, and institutional capital replaces bank capital, private debt instruments will support the growth of the European mid-market, in a more flexible and better adapted manner than bank capital could.