According to Preqin’s fund manager data, the UK remains the most favoured place for European fund managers to locate their headquarters. The UK dwarfs both France and Germany by comparison, which are ranked second and third respectively by private debt firm count for the region. The chart below shows that 48% of Europe-based managers are located in the UK, with France housing 16% of fund managers and Germany home to a further 7%. Given France’s position as the second largest market for private debt, it is clearly somewhere that lenders want to be. However, parts of the legal code do not support the creditor-friendly rules and rights that reassure investors used to British and American legal systems. Despite this, the ongoing evolution of French insolvency laws is creating a more creditor-friendly environment that would certainly help investors at the more junior end of a company’s capital structure should default issues arise.
Despite the increasing appetite for private debt in Europe, the region remains the most overbanked in the world. Germany stands out with more than 3,000 banks located within its borders; in such a saturated market, alternative lenders could find it difficult to establish a foothold going forward. Furthermore, the availability of cheap financing through the Schuldschein market means that private debt funds have increasing competition for access to quality deals. Despite the competition from more traditional lending sources, 41% of Germany-based fund managers tracked by Preqin maintain a primary focus on domestic opportunities, while 66% of all Germany-based fund managers have at least some exposure in Germany.
Following Germany is Switzerland, hosting 6% of private debt fund managers located in Europe, which is interesting given that the country is dominated by the banking sector. Preqin Data shows that the majority of these managers are involved in the direct lending space and focus on the European market. While the number of Switzerland-based managers involved in private debt remains small in comparison to the UK and France, there are certainly signs of some strong activity in the region.
With parts of Europe remaining overbanked and the availability of cheap financing in some regions increasing the level competition for quality deals, it has been difficult for some fund managers in parts of Europe to gain a foothold in the private debt market. This being said, legal changes coming into effect in the form of Basel I, II and III that force banks to comply with certain capital requirements may mean that the number of fund managers offering alternative lending solutions will increase going forward.