A UK perspective on non-bank lending in Europe

By Nick Smith, Director, Alternative Credit Council, Alternative Credit Council

Published: 08 May 2019

The Alternative Credit Council’s (ACC) Nick Smith shares his thoughts on the outlook for private credit in the UK and Europe

The latest ACC roundtable on the future of private credit in Europe recently took place in London.  This brought together London-based asset managers and the Financial Conduct Authority to discuss key market trends in private credit, the UK’s role as a hub for European lending and the evolving regulatory environment for the industry.

The tone of the discussion was extremely positive with many participants highlighting how far the UK and European markets have developed in a relatively short space of time.  There was also confidence that the growth potential of private credit in the UK and Europe remains strong, regardless of the UK’s future relationship with Europe.  While increased competition between lenders for traditional mid-market deals was described as a key challenge, this was also seen as driving an expansion in both the types of credit strategies being pursued and the jurisdictions in which private credit managers are now lending.  This development would, in time, make the European market both broader and deeper.

Optimism about the future was tempered with frustration at the challenges faced when firms look to develop and/or scale their European operations.  Calls for consistency in approach – for example, across different lending instruments within jurisdictions – and a reduction in cross-border lending barriers were expressed by almost all participants.  Participants emphasised the detrimental effect of these barriers on the availability and cost of finance to European borrowers and welcomed the ACC’s efforts to raise awareness of these with policymakers through our white paper on non-bank lending in Europe.

It was great to dig a little deeper into the considerations driving policymakers’ approach to private credit and respond to these with a practitioner’s perspective.  Our discussion took in everything from risk management processes, fund structuring arrangements, attitudes towards ESG, investor due diligence on managers (both before and after capital allocations), as well as managers’ own mindfulness about the future and their preparations for a range of scenarios.  These exchanges also underlined the value of the industry taking the time to explain how they run their business in shaping perceptions of private credit.

I would like to extend my thanks to Allen & Overy for supporting this discussion with their insights and for providing such an excellent venue.  Thank you also to our members and other attendees for contributing in such an open and constructive manner.