The European direct lending market has benefits over the US despite more certainty around growth across the Atlantic, according to Barings’ head of European private credit and capital solutions Stuart Mathieson.
The US economy has outperformed Europe’s in recent years and its private credit market is significantly bigger and more established.
But Mathieson believes that private credit investors should allocate to both markets to take advantage of differing opportunities.
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“In America, there’s a bit more certainty around growth,” he told Alternative Credit Investor.
“Certainly, I think the Trump administration, people would say, is pro-business. Equally, if you’re looking at the US market for private credit, it is more competitive, it’s slightly more transactional, and of course, the price compression is ahead of what you see in Europe today.
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“You could argue that on one side, there’s more certainty around corporate trading, but you won’t get paid as much.”
European returns from direct lending continue to exceed those seen in the US, and remain in double digits. A recent report from alternative asset manager Pemberton predicted that credit investors will continue to earn higher spreads in Europe versus the US given the more developed and commoditised nature of the US market.
“In Europe, there are other challenges,” added Mathieson. “What are the views around growth? That’s where you need to understand the types of businesses you’re investing in. But the pricing is attractive on a relative basis. People are weighing up those factors and ultimately, you still see the investor base looking to allocate to both markets and to balance out that risk.”
Mathieson also noted some interesting trends around cross-border transactions.
“We consolidate our sponsor relationships and think about how we interact with US sponsors looking at European deals and so forth,” he said. “I think the core middle-market direct lending sector will continue to grow, and it will grow in each of our regions.”
Look out for the full interview with Mathieson in the March issue of Alternative Credit Investor, out next week.
