Fidelity pushes into European corporate debt as banks hold back

Fidelity International is expanding into European business lending as asset managers look to take advantage of a gap in the market following the financial crisis and recent banking turmoil.

Fidelity, which oversees more than $700 billion, is launching a fund that will make secured loans to mid-sized European corporates with annual revenues of €5 million to €30 million.

The private credit team will run a Luxembourg-domiciled, closed-end fund with a focus on senior debt. It aims to make its first investment in the coming weeks.

The launch comes just after BlackRock, the world’s largest asset manager with more than $9 trillion in assets, bought private debt business Kreos Capital, which provides loans to start-ups and technology companies.

The moves by the world’s two most prominent fund groups underline a shift towards private loans, which have grown into a $1.4tn sector. US-based asset managers Nuveen and PGIM have also made private credit acquisitions in the last few months.

After the financial crisis in 2008, banks withdrew from providing some types of financing due to concerns about more risky lending and tighter capital requirements.

Bank lending has also been hit by the collapse of Silicon Valley Bank in the US and the acquisition of Credit Suisse by rival UBS in Europe earlier this year.

Nick Hageman, global head of private wealth solutions at Fidelity International, said, “What we’ve seen with Credit Suisse and SVB is that it’s not getting easier for banks, it’s more difficult, so we see this as an opportunity. lets see.”

“It’s a growing market. . . investors recognize this as an asset class in Europe where you can see a steady income stream. The new fund will be the first in the European direct lending sector,” he added.

Michael Curtis, who will co-manage the fund, said: “Returns in this market have looked more attractive over the past few years. This is a floating rate asset class, governed by a base rate and margin. He added that The fund will also benefit from transaction fees on underlying trades.

Even though the direct lending sector has grown over the past decade, Curtis said that “there are very few participants . . . looking at mid-market corporates”.

Fidelity said that despite the growing number of funds in the direct lending market, there was a gap in the medium-sized corporate sector.

About $125.9 billion was raised in 2021 and $75.9 billion in the first three quarters of 2022, according to data provider Prequin. In Europe, $45 billion was raised in 2021 and $25.7 billion in the first three quarters of 2022.