European Private Credit Market: A More Compelling Opportunity than the US

European asset manager Hayfin has made a compelling argument in favor of Europe over the US for alternative lenders and institutional investors. In a detailed 40-page report titled ‘Why Europe?’, Hayfin highlights the potential for disruption in Europe’s commercial bank-centric market by alternative lenders.

The report points out that European banks hold more than double the assets of their US counterparts, despite the US having a larger GDP. This imbalance presents an opportunity for private credit funds to step in and fill the gap left by retreating banks, particularly for smaller borrowers.

Hayfin notes that the European private credit market is still in its early stages compared to the US, with fewer funds vying for market share. The firm estimates that there are between 250 and 300 private credit funds in Europe, compared to over 500 in the US. This lack of competition in Europe gives an advantage to larger, more established players in the market.

Furthermore, Hayfin highlights that European private debt is dominated by a smaller number of large funds, with the top 25 funds raising the majority of capital in the region. This concentration of capital could lead to better terms, lower leverage, and more attractive risk-adjusted returns for private credit funds in Europe compared to the US.

Despite the perception of the US as a more creditor-friendly environment, Europe has historically seen higher credit recovery rates. The report points out that default rates in the US for leveraged loans and high-yield bonds are more than double those in Europe, indicating a more stable credit environment in Europe.

Overall, Hayfin’s report makes a strong case for the growth potential of European private credit funds, highlighting the unique opportunities and advantages that Europe offers over the US for alternative lenders and institutional investors.