European direct lending investment on course for record year
Investment by European direct – or non-bank – lenders is predicted to soar to record levels by the end of the year thanks to an increase in average loan sizes, but the number of deals struck is falling, new research has found.
Direct lenders in Europe deployed €22.6bn (£20bn) in the first half of 2019, according to a study by Deloitte.
Read more: Venture capital investment in fast-growing UK businesses surges
Direct lending is a form of corporate debt provision involving private lenders making loans to companies without the help of intermediaries such as brokers. The private debt market has grown substantially in recent years as banks cut back on business lending in the wake of the financial crisis.
The report predicts that the overall amount invested through direct lending will increase 18 per cent by the end of 2019, overtaking the record €38.1bn seen the previous year.
“Direct lending is growing rapidly into an asset class of its own as some banks pull back from riskier lending,” said Floris Hovingh, Deloitte’s head of alternative capital solutions.
A total of 178 direct lending deals were completed across Europe during the first half of the year, led by the UK, which saw 65 deals struck during the period. France had the second largest number of deals at 42, followed by Germany with 20.
There were 404 deals made in the 12 months to the first half of 2019, a three per cent decrease compared to the same period the year before, which saw 414 deals.
Investor interest in lending to European business has increased substantially this year. Asset management firm Pemberton raised €3.2bn for a new direct lending fund in August, while Alcentra and Bluebay raised €5.5bn and €6bn respectively for direct lending funds earlier in the year.
The average loan size from direct lenders rose to €91.2 million last year, a 46 per cent increase on the €62.5 million seen in 2016.
Read more: KKR acquires majority stake in broadband provider Hyperoptic in £500m deal
“The data shows that the deployment of cash is moving in sync with fundraising as fund managers write larger tickets. This means fears of an ‘overhang’ of undeployed capital can now be put to bed,” said Hovingh.
“However the question remains if direct lending returns will remain consistent for the most recent crop of billion plus direct lending funds,” he added.
Main image credit: Getty