No Result
View All Result
SUBMIT YOUR ARTICLES
  • Login
Monday, October 6, 2025
TheAdviserMagazine.com
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal
No Result
View All Result
TheAdviserMagazine.com
No Result
View All Result
Home Market Research Investing

From Inefficiency to Alpha: Europe’s Lower Mid-Market Opportunity 

by TheAdviserMagazine
3 weeks ago
in Investing
Reading Time: 5 mins read
A A
From Inefficiency to Alpha: Europe’s Lower Mid-Market Opportunity 
Share on FacebookShare on TwitterShare on LInkedIn


Private credit in Europe’s lower mid-market offers something increasingly rare: structural inefficiency that favors investors. While the United States dominates private credit by scale, Europe’s reliance on banks, smaller fund sizes, and regional fragmentation leave a persistent financing gap for firms too small for global capital markets but too large to depend solely on local banks. This creates a compelling, and likely durable opportunity for private credit funds with local market expertise.

Despite lower base rates, borrowers in Europe are paying higher spreads and fees as the all-in yields in Europe and the US are broadly similar. Further, bank retrenchment and concentrated fundraising among the largest funds have left the fragmented lower mid-market less competitive. For investors, that means an attractive entry point today. Structural inefficiencies continue to preserve pricing power, making partnership with the right managers critical.

Access to debt financing is critical for the growth of small- and medium-sized enterprises (SMEs), which form the backbone of the European economy. According to the European Commission, SMEs represent more than 99% of the European Union’s 32.3 million enterprises. The lower mid-market — firms with 250 to 5,000 employees — comprise roughly 8% of EU businesses, or about 2.6 million companies.

Historically, SMEs have relied heavily on banks, particularly in continental Europe. Stricter capital requirements imposed on banks post-financial crisis have constrained bank lending, in turn hitting the lower mid-market especially hard, particularly outside major financial hubs such as London or Frankfurt[1].

Private credit has stepped in to partially fill this gap, but capital is increasingly concentrated. In 2024, 94% of all private credit capital raised globally went to the largest 50 funds, up from 81.5% a year earlier[2]. As a result, terms and pricing in the upper mid-market (typically EBITDA > €25–30 million) have largely converged between the United States and Europe, with borrowers enjoying ample access to credit.

In contrast, the lower mid-market remains fragmented and less intermediated, creating a structural opportunity for non-bank lenders and offering greater degree of transaction control and pricing power. Recent research by Aksia supports this conclusion[3].

Quantifying the Opportunity

To compare the European and US lower mid-market landscapes, we gathered data on direct lending funds in both regions from various data sources[4]. In total, we considered approximately 20 senior secured loan funds in each region.  While not statistically exhaustive, the analysis reveals several consistent patterns.

All-in yields in Europe are slightly higher than they are in the United States, despite lower base rates. This has been the case since mid-2022, the start of the Federal Reserve and European Central Bank rate hikes. As of September 1, 3-month SOFR stood at approximately 4.03% versus 3-month Euribor at roughly 2.07%. While difficult to measure empirically, this suggests that borrowers in Europe face higher spreads, higher upfront fees, or both.  

More importantly, we observe more conservative deal structuring and risk profiles in Europe, particularly in terms of leverage. In cash flow-based loans, leverage (Debt/EBITDA) tends to be lower in Europe: our sample suggests a difference of approximately 0.5x. From our own market observations, debt-to-ARR multiples in the software sector peaked at around 2x in Europe and have since fallen to below 1x, compared to current US levels of 2x, and as high as 3x at the peak.

Why the Gap Persists

The attractive risk-reward profile in European lower mid-market private credit reflects a combination of structural inefficiencies and cyclical dynamics. While market conditions may evolve, many of the underlying drivers point to a lasting transatlantic gap.

Cyclical factors include interest rate and currency differentials, which affect base rates and hedging costs. Europe’s weaker recent macro backdrop including slower growth, geopolitical uncertainty, and energy shocks, has tempered lending appetite. In contrast, parts of the US market have shown signs of exuberance, with tighter spreads and looser structures.

Structural differences like a shallower institutional capital pool, bank dominance, and borrower conservatives are more enduring. The European private credit market remains less developed than the US market.  In 2024, North America–focused private credit funds captured ~72% of global capital raised[5].  Since 2008, ~70% of private credit capital has been raised in North America and ~25% in Europe, according to the RBA summary of IMF/PitchBook work. While capital flows might be shifting, the depth and dynamism of the US market means near-term convergence is unlikely.

As of December 2024, European direct lending dry powder stood at approximately $80 billion, down from nearly $95 billion a year earlier, whereas North America hit a record $167 billion in December 2024, up 17% year-on-year[6]. In addition, the more advanced private credit landscape in the United States also gives North American managers the ability to employ scale-enhancing tools such as fund-level leverage and co-investments more readily. This disparity illustrates the depth and efficiency advantages in the US market.

At the smaller end of the spectrum, the gap widens. Since 2023, 453 North America-focused direct lending funds below $2 billion have been raised, compared to just 185 funds in Europe[7].

Investor preferences reinforce this divide. European LPs, typically more risk-averse, have limited appetite for niche strategies. Instead, they have favored large, plain-vanilla direct lending funds offered by the biggest US managers.

On the demand side, European borrowers remain more conservative, with smaller deal sizes, slower decision-making, and less familiarity with structured credit. Such cultural and behavioral factors reduce transaction velocity but also limit lender competition and support more conservative structures with arguably superior risk dynamics.

Bank reliance, especially in DACH (Germany, Austria, and Switzerland), and Southern Europe, further entrenches the gap. While non-bank lenders have grown market share in sponsor-led transactions — accounting for 56% in Germany in 2024 and 20–40% in Spain over the past two years — most SMEs still lack access to tailored credit. 

Combined with Europe’s legal, cultural, and regulatory fragmentation, and the need for local presence across multiple jurisdictions, these structural factors make near-term convergence unlikely, particularly in the lower mid-market.

Implications for Investors

Europe’s private credit market has progressed just as investor sentiment towards the asset class has shifted. Borrowers in the upper mid-market have little trouble accessing capital as Europe and the US now operate in a largely integrated global market.

Opportunities abound in the European lower mid-market, which remains one of the few places where investors can still capture higher yields alongside stronger credit protections. Success depends less on scale than on choosing managers with deep local networks, multi-jurisdictional expertise, and a track record of structuring and exiting transactions. While some convergence with the US market is possible, structural inefficiencies in Europe’s lower mid-market are unlikely to disappear quickly. For investors prepared to look beyond the largest platforms, the region offers a durable and differentiated source of alpha.

[1] Deutsch Bundesbank Discussion Paper No. 37/2022, https://hdl.handle.net/10419/265433

[2] Preqin 2025 Global Report: Private Debt.

[3] Aksia, “Does Private Credit have too much money?” August 2025.

[4] Including Preqin, publicly available data and information provided directly by the fund managers.

[5] Preqin 2025 Global Report: Private Debt.

[6] Preqin Direct, extracted August 2025

[7] Preqin Direct, extracted August 2025: Includes vintage years 2023 onwards



Source link

Tags: AlphaEuropesInEfficiencymidmarketopportunity
ShareTweetShare
Previous Post

PunkStrategy Makes Punks NFT Trading Easier

Next Post

8 Things New Businesses Overlook That Put Them Out of Business Fast

Related Posts

edit post
Turning a ,000 Rental Property into a ,000/Month Rental Portfolio

Turning a $25,000 Rental Property into a $5,000/Month Rental Portfolio

by TheAdviserMagazine
October 6, 2025
0

This investor turned a $25,000 rental property (yes, you read that right) into a real estate portfolio producing $5,000/month in...

edit post
Why Everyone’s Moving South (and Why Investors Should Pay Attention)

Why Everyone’s Moving South (and Why Investors Should Pay Attention)

by TheAdviserMagazine
October 3, 2025
0

In This Article This article is presented by Coastal Equity Group. If it feels like everyone you know is packing...

edit post
Detroit Doesn’t Want More Real Estate Investors—But Their New Policy is Creating More

Detroit Doesn’t Want More Real Estate Investors—But Their New Policy is Creating More

by TheAdviserMagazine
October 3, 2025
0

In This Article Detroit Rock City? More like Detroit “Rental City.” The Motor City’s emergence as a rental haven for...

edit post
Book Review: The Tax-Smart Donor: Optimize Your Lifetime Giving Plan

Book Review: The Tax-Smart Donor: Optimize Your Lifetime Giving Plan

by TheAdviserMagazine
October 3, 2025
0

The Tax-Smart Donor: Optimize Your Lifetime Giving Plan. 2025. Phil DeMuth. Alpha Dog Press Charitable giving is a way of...

edit post
Is Your Airbnb Losing Money? Here Are Five Easy Ways to Fix It

Is Your Airbnb Losing Money? Here Are Five Easy Ways to Fix It

by TheAdviserMagazine
October 2, 2025
0

In This Article This article is presented by PriceLabs. Most Airbnb hosts are losing money and don’t even realize it....

edit post
Financial Selection and Investor Herding: Lessons from Evolutionary Biology

Financial Selection and Investor Herding: Lessons from Evolutionary Biology

by TheAdviserMagazine
October 2, 2025
0

Biologists have long debated the mysterious role of mate selection in evolution. Investors can learn much from their findings. Mate...

Next Post
edit post
8 Things New Businesses Overlook That Put Them Out of Business Fast

8 Things New Businesses Overlook That Put Them Out of Business Fast

edit post
Keystone Education Group launches mega-agency

Keystone Education Group launches mega-agency

  • Trending
  • Comments
  • Latest
edit post
What Happens If a Spouse Dies Without a Will in North Carolina?

What Happens If a Spouse Dies Without a Will in North Carolina?

September 14, 2025
edit post
California May Reimplement Mask Mandates

California May Reimplement Mask Mandates

September 5, 2025
edit post
Does a Will Need to Be Notarized in North Carolina?

Does a Will Need to Be Notarized in North Carolina?

September 8, 2025
edit post
DACA recipients no longer eligible for Marketplace health insurance and subsidies

DACA recipients no longer eligible for Marketplace health insurance and subsidies

September 11, 2025
edit post
‘Quiet luxury’ is coming for the housing market, The Corcoran Group CEO says. It’s not just the Hamptons, Aspen, and Miami anymore

‘Quiet luxury’ is coming for the housing market, The Corcoran Group CEO says. It’s not just the Hamptons, Aspen, and Miami anymore

September 9, 2025
edit post
Tips to Apply for Mental Health SSDI Without Therapy

Tips to Apply for Mental Health SSDI Without Therapy

September 19, 2025
edit post
Estate Planning for Restricted Stock Units: What You Need to Know

Estate Planning for Restricted Stock Units: What You Need to Know

0
edit post
More Workers Push Back as Return-to-Office Mandates Intensify

More Workers Push Back as Return-to-Office Mandates Intensify

0
edit post
David Ellison says he’s confident Bari Weiss ‘will invigorate CBS News’ as new editor-in-chief

David Ellison says he’s confident Bari Weiss ‘will invigorate CBS News’ as new editor-in-chief

0
edit post
Catalonia’s Sugary Beverage Tax Hasn’t Improved Public Health

Catalonia’s Sugary Beverage Tax Hasn’t Improved Public Health

0
edit post
Turning a ,000 Rental Property into a ,000/Month Rental Portfolio

Turning a $25,000 Rental Property into a $5,000/Month Rental Portfolio

0
edit post
How to Hire Movers in Six Steps

How to Hire Movers in Six Steps

0
edit post
More Workers Push Back as Return-to-Office Mandates Intensify

More Workers Push Back as Return-to-Office Mandates Intensify

October 6, 2025
edit post
David Ellison says he’s confident Bari Weiss ‘will invigorate CBS News’ as new editor-in-chief

David Ellison says he’s confident Bari Weiss ‘will invigorate CBS News’ as new editor-in-chief

October 6, 2025
edit post
How to Hire Movers in Six Steps

How to Hire Movers in Six Steps

October 6, 2025
edit post
Dow falls, S&P 500 and Nasdaq rise as AMD surges on OpenAI deal, shutdown drags on

Dow falls, S&P 500 and Nasdaq rise as AMD surges on OpenAI deal, shutdown drags on

October 6, 2025
edit post
Catalonia’s Sugary Beverage Tax Hasn’t Improved Public Health

Catalonia’s Sugary Beverage Tax Hasn’t Improved Public Health

October 6, 2025
edit post
Ethereum’s Price as Grayscale Launches Staking ETPs – ,331?

Ethereum’s Price as Grayscale Launches Staking ETPs – $7,331?

October 6, 2025
The Adviser Magazine

The first and only national digital and print magazine that connects individuals, families, and businesses to Fee-Only financial advisers, accountants, attorneys and college guidance counselors.

CATEGORIES

  • 401k Plans
  • Business
  • College
  • Cryptocurrency
  • Economy
  • Estate Plans
  • Financial Planning
  • Investing
  • IRS & Taxes
  • Legal
  • Market Analysis
  • Markets
  • Medicare
  • Money
  • Personal Finance
  • Social Security
  • Startups
  • Stock Market
  • Trading

LATEST UPDATES

  • More Workers Push Back as Return-to-Office Mandates Intensify
  • David Ellison says he’s confident Bari Weiss ‘will invigorate CBS News’ as new editor-in-chief
  • How to Hire Movers in Six Steps
  • Our Great Privacy Policy
  • Terms of Use, Legal Notices & Disclosures
  • Contact us
  • About Us

© Copyright 2024 All Rights Reserved
See articles for original source and related links to external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal

© Copyright 2024 All Rights Reserved
See articles for original source and related links to external sites.