Europe-focused private credit fundraising outpaces US efforts

Europe-focused private credit fundraising for the year to March 20 totaled $25.71 billion, almost triple the $9.27 billion raised by US-focused counterparts in the same time period, according to Preqin Pro data.

Private credit and private equity follow economic growth, and the US and Europe are growing at different speeds, said Joe Alala, founder and CEO of private equity firm Capitala Group. "If you look at the cycle, the US economy has been growing and coming out of the pandemic sooner than the European economies have," Alala said. "But now we're seeing economic growth again in the EU."

The EU's GDP grew 0.4% in the third and fourth quarters of 2024, the highest quarterly growth rates for the bloc since 2022, Eurostat reported in March.

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PE firms led 2024 private credit fund closes

The largest Europe-focused private credit fund closed in 2024 was the ICG Senior Debt Partners Fund 5 from London-based private equity firm Intermediate Capital Group PLC. The direct lending, senior debt fund reached a final close in November 2024 on $14.5 billion.

The second-largest was Park Square Capital LLP's Park Square Capital European Loan Partners II. The direct lending fund closed in April 2024 on $3.77 billion.

"A lot of the volume has been raised by a few of the largest managers," said Houlihan Lokey Inc.'s Head of Sponsor Finance in Europe, Patrick Schoennagel. "Private credit is an asset class that has a lot of tailwinds in regards to institutional money looking for more exposure compared to other asset classes."

In North America, the largest was Ares Management Corp.'s Ares Senior Direct Lending Fund III, raising $15.3 billion on the final close.

Funds in market target North America

Six of the 10 largest private credit funds still seeking capital in both regions are focused on North America.

Clearlake Capital Group LP's North America-focused Clearlake Capital Partners VIII LP special situations fund with a size of $15 billion ranks as the largest private credit fund in both regions still seeking capital, according to Preqin.

The second-largest fund still open is Arcmont Asset Management's Europe-focused Direct Lending Fund V with a size of $12.97 billion.

Private credit to target specific end markets

Schoennagel expects private credit to finance more deals in Europe, targeting sectors less affected by macroeconomic shifts.

"Software companies that have predictable growth and cash flows, critical business services that companies have to invest in no matter what the economic outlook is, and some parts of the healthcare sector are the sort of end markets where private credit is most keen to deploy," Schoennagel said.

Germany and the Netherlands are seeing high levels of deployment, he added. "More than half of [Europe's] deals in the next three-to-five years will almost certainly be funded by private credit."

In the US, Alala expects private credit financing to go to businesses outside manufacturing that are relatively insulated from increased raw materials costs resulting from import tariffs.

"Pure business services that wouldn't be impacted by some of the pending policies would do a lot better because you're not dependent on importing goods and raw materials and services," Alala said.