AllianzGI: Momentum builds for Europe’s private credit, but structure still matters

25 juni 2026

Europe has long lagged behind North America in private credit, but that is changing rapidly. Sebastian Schroff of Allianz Global Investors discusses Europe’s growth, regional differences, the impact of AI, and the appeal of the core mid-market segment.

By Harry Geels

How has the European private credit market evolved in recent years?

‘Before the Global Financial Crisis, private credit was primarily an American phenomenon, with most of its growth taking place after this crisis. From around 2010 onwards, it began to grow gradually in Europe, initially only in the UK. In recent years, we have seen rapid growth, including in continental Europe, driven in large part by the withdrawal of banks from the small and medium-sized enterprise segment, but also by a broader trend of smaller companies increasingly considering staying private rather than going public.

We also see rising interest in private investments, particularly from institutional investors, as their long-term liabilities align well with partial allocations to illiquid assets. Europe is still behind the US. The size of the private credit market in the US is around $ 1.5 trillion, while Europe is currently roughly half that size.

Recently, there have been several warnings about the rapid growth, and we closely monitor the current market environment. But in our view, there remains a healthy balance between risk and return, especially in the lower mid-market and core midmarket segment. The secondary market in Europe has also grown significantly, which is positive as it adds an extra layer of liquidity to the private market.’

How do you assess the current risk environment for private credit, and what are the key differences between Europe and the US?

‘First, we are at a stage in the credit cycle where we will see more winners and losers emerging. Interest rates have risen in recent years, and AI is disrupting certain sectors. However, we do not see systemic risks right now. Most investors are institutions with long-term horizons that are not forced to rapidly deleverage or sell assets. Even in situations where investors do need liquidity, the contagion mechanism is significantly restricted, at least not in the way we have seen in traditional banking crises. The growing credit secondary market can provide an additional source of liquidity.

There remains a healthy balance between risk and return, especially in the lower mid-market and core mid-market segment.

In terms of regional differences, European private credit structures generally use less leverage than their US counterparts. On a company level, leverage typically ranges from four to five times EBITDA, whereas in the US it is more often five to six times. At AllianzGI, we use even less leverage than the European average. Spread compression of between 100 and 200 basis points has mainly been observed in the US upper mid-market segment. In Europe, spreads have also tightened somewhat, but they remain relatively contained.

There is still clear relative value in Europe. The secondary market mentioned earlier is also currently attractively priced, given the stage of the credit cycle. Private credit in the US also has a larger allocation to software companies affected by AI. The extent of AI’s long-term impact, however, remains to be seen, and it is still unclear whether current concerns are fully justified. Clearly, many business models are being significantly affected, some positively and others negatively. But one thing remains clear: disciplined underwriting is key.’

How does European private credit compare to Asian private credit?

‘At AllianzGI, we focus on both European and Asian private credit and assess investment opportunities primarily from a country-specific perspective. There are significant differences between countries in terms of regulation and legal frameworks. Private loans in India, for example, require a different approach to structuring than those in Australia. Private credit in Europe has already reached a meaningful scale. In Asia, where we were one of the pioneers in the market, we are now seeing growth accelerate – essentially a third wave, following first the US and then Europe. Growth in Asia is relatively strong, and the risk premium can be very attractive. In fact, spreads in Asia are often even significantly higher than those in Europe.’

Why do you place a strong emphasis on the core mid-market segment in your European funds?

‘In the upper mid-market, where larger companies operate and loan sizes can range from around € 0.5 billion to € 1 billion plus, there is typically competition with public markets and leveraged loans provided by banks. This is less the case in the core midmarket, which creates a different competitive dynamic and generally leads to more attractive risk-return profiles. In many cases, private credit can even be the sole lender, allowing us to structure loans according to our own terms and maintain control in the event of a default. In this segment, we do see spreads of 500 to 600 basis points, compared with 400 to 500 basis points in the upper mid-market, along with more favorable conditions and better risk mitigation.’

The European region can offer more diversified and balanced portfolios than those of the US, not only across sectors but also across different countries and credit cycles.

Is European private credit still less efficient than in the US?

‘Europe is more fragmented – linguistically and legally – and therefore likely less efficient. To exploit these inefficiencies, local presence is essential, which can work to the advantage of active investors like us. For example, Germany remains a much more bank-dominated market than the UK, although the number of banks in Germany has also declined by roughly two thirds over the last 30 years. There are also clear differences in economic growth across countries, leading to variations in credit cycles. The European region can offer more diversified and balanced portfolios than the US market, not only across sectors but also across different countries and credit cycles.’

Are private markets also attractive because they provide faster access to trends such as sustainability and AI?

‘Yes. Private markets can provide earlier and more direct exposure to structural trends such as sustainability and AI, as many of the companies and assets driving these developments are privately financed and often remain outside the public markets for extended periods.

In the case of AI, private credit is less about financing AI software companies and more about funding the infrastructure that enables AI adoption, including data centers, fiber networks, power generation, grid upgrades, and energy storage. Similarly, sustainability-related opportunities often arise in renewable energy, electrification, battery storage, and other transition infrastructure projects.

These sectors typically require significant long-term capital, making them well suited to private market financing. As long-term investors focused on credit fundamentals, private lenders can play an active role in providing financing solutions while gaining exposure to some of the most important secular growth trends shaping the global economy.’

Read the interview in the digital magazine