Direct lending & the European transformation

European transformation is an ambitious project, requiring significant capital deployment. High debt levels limit what governments can do. Private debt will need to fill the investment gap
Small and medium-sized enterprises (SMEs) are the backbone of Europe’s economy. They account for more than half of Europe’s GDP and employ around 100 million people
SMEs have no direct access to capital markets or other sources beyond credit. Private investments via direct lending are an alternative addition to bank loans, which provide SMEs with the capital needed for their transformation
SMEs have a key role to play in the European transformation. Their growth is expected to be significantly accelerated by key technological, societal and geopolitical mega-trends, with SMEs providing products and services

We find that banks typically provide about 70% of corporate financing in Europe. In the US, by contrast, about 70% percent of companies are financed on the capital market^[1]. This reflects the heavy reliance on the banking sector in financing economic activities in Europe, where financing has been hindered by the after-effects of both the 2007-08 Global Financial Crisis and the subsequent euro sovereign debt crisis. Listed equity markets ought to step in and provide financing for long-term transformative projects in Europe, but this is largely absent. At the same time, the euro area economy has seen growing importance of the non-bank financial sector in supporting the financing of the real economy and financial market integration. The share of financing through debt funds (in terms of number of transactions) in the leveraged loan mid-market in the euro area grew from less than 14% in 2013 to almost 60% in 2022^[2].