The maturation, diversification, and relentless growth of Europe's private debt market were key themes of discussion at the IPEM Wealth 2025 event in Cannes in late January.
Despite headwinds for M&A activity, optimism ran high at the gathering as the industry explored new fundraising avenues, with private wealth emerging as the central focus of the meeting.
Panellists also agreed that the steady decline in European base rates is set to boost M&A activity, reduce borrowing costs, and ultimately lower default rates.
Meanwhile, it was stressed that the development of the private debt market is entwined with lending banks. “It is silly to consider the reopening of the capital market a threat for private debt, and a healthy broadly syndicated loans (BSL) market is healthy for us — you want people to have a choice,” one direct lender said.
Hand in hand
Private credit has also learned to work with banks to create hybrid structures. “We have increasingly seen capital structures where both the direct lending market and the public market worked collaboratively,” said a panellist. “We've had large private credit tranches alongside syndicated tranches, and there were some instances where perhaps the senior part of the capital structure was syndicated, but there was also junior subordinated capital led by private credit investors.”
Indeed, hybrid financings are becoming more prevalent in the European market, with structures combining bank-syndicated euro term loans and private credit-financed sterling tranches, for example. This approach was seen on OCU Group’s two-part term loan refinancing in October, which replaced a unitranche facility. A similar mixed lending base was in play on Ardonagh’s transaction, highlighting the market’s growing adaptability. “I think bank retrenchment has been a theme for 10-15 years or so, and that is why private credit grew so much,” another panellist noted.
Participants were also confident of the market’s ability to weather macro volatility. “There are certain aspects of the economy globally at the moment which may increase volatility, but in Europe over the last 15 years, we have experienced the GFC, the Eurozone debt crisis, Brexit, and the emergence of inflation — and we have come through it,” another lender said.
Showcasing the strength of the asset class, direct lending financings bagged an average 78.5% share of European LBO deals in 2024, according to LCD, clearly outgunning the BSL market.
Private credit managers are meanwhile expanding their offerings and capabilities beyond direct lending, including special situations financing, distressed debt, real estate financing, PIK and structured equity, as well as asset-backed lending. Such diversification signals the increasing maturity of the sector, say the IPEM panellists.
Middle earth
Another major dynamic in play is that a renewed competitive offering from syndicated markets is increasingly taking private credit players to their core middle-market ground, according to lenders.
What's more, the mid-market dial has now moved in an asset class that has the maturity to deliver what sponsors expect. Euro syndicated markets are still the first port of call for jumbo deals, but unitranche lenders are offering larger tickets. Back in 2020, lenders were mainly present on transactions sized below €350 million, with 98% of direct lending deals (by count) falling into that category. Fast-forward to 2024 though, and those deals represented a far slimmer 57%, while a chunky 17% of transactions exceeded €1 billion.
Adapt and survive
Another sign of maturity is private credit’s ability to adapt to market conditions. With slower M&A and sponsors holding on to assets for longer, the number of refinancing and recapitalisation processes has significantly increased over the last year, and market players agree this trend is here to stay. In 2024, 22.5% of direct lending deals were for refinancings, with recaps taking a 2.8% share. Back in 2020, however, only 9.8% of direct lending deals were for refinancings, and just 0.8% were for recaps.
The muted M&A backdrop has hindered deployment for all asset classes, but there is a lingering optimism for private debt because it’s bound to grow, according to market participants. “If you look at how the US has grown, we can only imagine that Europe will be following the same path,” another lender said. “Also private debt started in Europe with the UK and then France. Those were the first tier and then came Germany, and now with the Nordics and Southern Europe opening up, there is a lot of opportunity.”
Looking at Italy's growth for example, that country's market took just 3.8% of direct lending deals back in 2020, but grabbed a 9.2% share in 2024, and has accounted for 11.1% so far in 2025.
“I do not think the UK will grow much more because the banks are already pretty retrenched. However, I also think we touched the lowest point of the M&A cycle at the end of 2023 and that it’s going to steadily pick up, providing a lot of opportunities for direct lenders,” another person said.
Private wealth
The private debt universe as a whole is estimated by a panellist at the IPEM event to reach roughly $3.5 trillion in the next three to four years, which suggests there are significant opportunities for both institutional and private investors. Meanwhile, the growth of the European direct lending market is stimulated by the ongoing shift from levered bank lending to private credit funds which are backed not just by pension funds and insurance capital — but also increasingly by private wealth investors.
“The denominator effect does not to worry LPs anymore,” noted another panellist. “The illiquidity premium is emerging as a driving force behind the trend towards private markets, and investors are recognising it as a reason to increase allocations to these strategies. Investors have had to adapt to changing market conditions over the last 12 months, and despite this, allocations to private markets have continued to trend upwards. This suggests a recognition of these asset classes to deliver across various stages of the investment cycle and offer diversification from public markets,” they added.
“We have seen more recently that institutional investors have been constantly increasing their allocations to private debt — not only the people who are coming from fixed income, but also those from private equity, because they thought private debt might be a good diversifier to their private assets, and that it could provide very decent return diversification and protection,” explained a different panellist.
“Wealth investors have been familiar with private equity for a while now and now they are looking at private credit. However, the one area that needs to be addressed is different regulatory requirements in European countries, and also there might be risks that still need to be clarified,” another attendee concluded.
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