Europe today presents one of the most structurally sound credit environments among developed markets, contrary to popular belief, according to KKR.
KKR has been actively investing across the region for over 25 years, building local expertise in private equity, real assets, and credit.
The start of 2025 has seen a meaningful pickup in activity across Europe, it pointed out. Following a muted 2023 and choppy 2024, many sponsors and issuers have returned to the market with renewed inspiration and urgency.
In the latest update from Michael Small, partner in the firm’s credit and markets business, he said headwinds such as a slowdown in M&A activity and renewed concerns over trade policy – most recently from the sharp tariff “Liberation Day” escalation – are not major concerns for Europe’s private credit sector.
They “have added to broader market volatility and uncertainty, but do not appear to be slowing down the region’s momentum”, he said.
In fact, European high yield and leveraged loans have outperformed their US counterparts during the recent market sell-off,” Small pointed out.
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One reason for this relative stability, according to KKR’s analysis, is the lower proportion of daily liquidity vehicles, such as mutual funds and ETFs, in the European market.
This, Small said, has helped reduce the risk of sharp, flow-driven drawdowns that can be triggered by forced selling in more retail-heavy markets.
He pointed to a recent private equity deal for KKR to acquire Karo Healthcare from EQT in a take-private transaction. While not an IPO, Small said the deal reflects a “clear market appetite for high-quality European assets”, and speaks to investor conviction despite macro uncertainty.
“Just as telling is the expected financing approach, which is likely to involve direct lenders, underscoring the growing role of non-bank capital providers as traditional bank appetite goes off risk,” said Small.
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He pointed to Europe’s comparatively conservative use of leverage, particularly at the sovereign and corporate levels, as a particular strength, with the tone set for a capital system that “rewards prudence and long-term value creation”.
KKR has also previously highlighted the resilience of the UK’s services-driven economy as further reinforcing these opportunities.
This is especially the case in areas such as financial and professional services, which, Small pointed out, “have proven relatively resilient even amidst renewed tariff-related uncertainty”.
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As banks continue to pivot away from certain capital-intensive activities, non-bank lenders with the flexibility to step in are well positioned to capture increased opportunities to provide financing on favourable terms, Small said.
“This evolving regulatory backdrop, coupled with what we believe to be an undervalued region, reinforces the growing relevance of European leveraged credit, direct lending, junior debt and other structured capital solutions as complementary components of thoughtful portfolio construction,” he added.
