Europe as we speak presents probably the most structurally sound credit score environments amongst developed markets, opposite to fashionable perception, in keeping with KKR.
KKR has been actively investing throughout the area for over 25 years, constructing native experience in non-public fairness, actual property, and credit score.
The beginning of 2025 has seen a significant pickup in exercise throughout Europe, it identified. Following a muted 2023 and uneven 2024, many sponsors and issuers have returned to the market with renewed inspiration and urgency.
Within the newest replace from Michael Small, associate within the agency’s credit score and markets enterprise, he mentioned headwinds equivalent to a slowdown in M&A exercise and renewed issues over commerce coverage – most just lately from the sharp tariff “Liberation Day” escalation – are usually not main issues for Europe’s non-public credit score sector.
They “have added to broader market volatility and uncertainty, however don’t seem like slowing down the area’s momentum”, he mentioned.
Actually, European excessive yield and leveraged loans have outperformed their US counterparts in the course of the latest market sell-off,” Small identified.
Learn extra: M&A will ‘ramp extra steadily than hoped’, says KKR non-public credit score head
One cause for this relative stability, in keeping with KKR’s evaluation, is the decrease proportion of each day liquidity automobiles, equivalent to mutual funds and ETFs, within the European market.
This, Small mentioned, has helped scale back the danger of sharp, flow-driven drawdowns that may be triggered by pressured promoting in additional retail-heavy markets.
He pointed to a latest non-public fairness deal for KKR to amass Karo Healthcare from EQT in a take-private transaction. Whereas not an IPO, Small mentioned the deal displays a “clear market urge for food for high-quality European property”, and speaks to investor conviction regardless of macro uncertainty.
“Simply as telling is the anticipated financing strategy, which is prone to contain direct lenders, underscoring the rising function of non-bank capital suppliers as conventional financial institution urge for food goes off threat,” mentioned Small.
Learn extra: KKR closes opportunistic actual property credit score technique with $850m
He pointed to Europe’s comparatively conservative use of leverage, notably on the sovereign and company ranges, as a selected energy, with the tone set for a capital system that “rewards prudence and long-term worth creation”.
KKR has additionally beforehand highlighted the resilience of the UK’s services-driven financial system as additional reinforcing these alternatives.
That is particularly the case in areas equivalent to monetary {and professional} companies, which, Small identified, “have confirmed comparatively resilient even amidst renewed tariff-related uncertainty”.
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As banks proceed to pivot away from sure capital-intensive actions, non-bank lenders with the pliability to step in are properly positioned to seize elevated alternatives to supply financing on beneficial phrases, Small mentioned.
“This evolving regulatory backdrop, coupled with what we consider to be an undervalued area, reinforces the rising relevance of European leveraged credit score, direct lending, junior debt and different structured capital options as complementary parts of considerate portfolio building,” he added.
