Private credit in Europe is experiencing growth that would have seemed improbable five years ago. American lenders are shifting capital across the Atlantic, regulatory frameworks are being redesigned to accommodate the asset class, and institutions that once dismissed direct lending as a niche product are now building dedicated teams to access it.
The numbers tell part of the story. The Draghi Report estimates that Europe needs investments equivalent to 5% of its GDP to boost competitiveness and growth. The European Parliament projects that ELTIF 2.0 assets could reach €100 billion by 2028. Private lenders from the United States, where the market has matured and competition has intensified, are reallocating towards Europe where valuations are lower and credit is cheaper.
What the numbers do not always show is the risk that has accumulated alongside the growth. Recent failures, suspended redemptions, and regulators’ warnings suggest that private credit is entering a phase where the assumptions that supported its expansion are being tested.
The Shift to Europe
The movement of US private credit capital into Europe is structural, not cyclical. According to analysis published by BNP Paribas in February 2026, American private lenders are redirecting their focus to Europe as domestic opportunities become more competitive and pricing tightens. European mid-market companies, traditionally reliant on bank financing or syndicated loans, now have access to direct lending from funds with substantial dry powder and appetite for deployment.
The regulatory environment has adapted to encourage this. The European Long-Term Investment Fund regulation, revised in 2023 and now fully operational, allows retail investors to access private credit through ELTIF structures with enhanced liquidity provisions. This was designed to democratise access to alternative investments and channel more capital into European growth companies.
Direct lending has moved from an alternative financing source to a mature market segment. It now competes directly with syndicated loan financing and high-yield bonds, offering borrowers flexibility and speed that traditional bank lending often cannot match. For asset managers, the appeal is equally clear: higher yields, floating-rate structures that provide protection against interest rate risk, and covenants that offer greater control in downturns.
The market has responded. Allocations to private credit have increased across institutional portfolios, pension funds have committed capital to direct lending strategies, and wealth managers are positioning ELTIF products to high-net-worth individuals who were previously excluded from this asset class.
The Hidden Losses
The growth has not been without incident. In February 2026, Blue Owl Capital, one of the largest US private credit managers, suspended quarterly redemptions from one of its flagship funds. The announcement triggered a 7% drop in the firm’s share price and raised questions about liquidity management across the sector. Blue Owl subsequently sold a portfolio for $1.4 billion at 99.7% of nominal value to meet redemption requests, but the suspension itself was significant. It marked a change in strategy for a firm that had built its reputation on offering liquidity in what is fundamentally an illiquid asset class.
The Blue Owl case was not isolated. In December 2025, the founders of Tricolor, a borrower in the private credit market, were indicted for what prosecutors described as systematic fraud. JPMorgan, which had exposure to the company, took $170 million in charges. Weeks later, the founders of First Brands Group were indicted for misleading lenders, leading to the company’s bankruptcy.
These are individual cases, but they expose a structural issue. Private credit funds hold loans to maturity in closed-ended structures. Valuations are based on models, not market prices. When a borrower fails or a fraud is uncovered, the loss becomes visible immediately. But when credit quality deteriorates gradually, the decline may not be reflected in valuations for months or even years.
The International Monetary Fund flagged this risk in April 2024, noting that the opacity of the private credit market could complicate the assessment of losses in a marked slowdown. The IMF observed that private credit funds lock up capital for long periods, and newer funds marketed to retail investors through structures like ELTIF could present redemption risks that have not been tested in a scenario of mass withdrawals.
In June 2025, the Banque de France published an analysis of private equity and private debt funds, noting that rapid growth had been accompanied by increasing interconnections with the rest of the financial system, which remain difficult for authorities to measure precisely. The central bank concluded that greater transparency is essential to better understand risks and ensure effective supervision.
The warning has not stopped the growth, but it has introduced caution. Fund flows into private credit slowed in the second half of 2025, and some investors have begun asking for more granular reporting on portfolio credit quality and valuation methodologies.
The recent turbulence is testing the foundations of private credit’s rapid development: aggressive lending, highly leveraged mid-market borrowers, and the assumption that defaults will remain manageable even as interest rates have risen. So far, defaults in private credit have been lower than in the leveraged loan market, but the full effects of higher rates on companies that borrowed in 2021 and 2022 are only beginning to show.
The Operational Challenge
For European asset managers and institutional investors looking to build or expand private credit capabilities, the challenge is not just capital allocation. It is operational capacity.
Private credit requires different expertise than public markets. Credit underwriting, borrower monitoring, covenant negotiation, and workout management are intensive processes that cannot be automated. Funds need experienced professionals who understand corporate finance, can assess borrower business models, and know how to manage distressed situations when they arise.
The talent pool in Europe is limited. Private credit in its current form is relatively recent on the continent, and the professionals with 10 to 15 years of direct lending experience are concentrated in a small number of firms. Recruitment has been active, but training new hires takes time. The asset managers expanding into private credit fastest are often those struggling most to find the right people.
ELTIF 2.0 adds another layer of complexity. Retail-facing products require different governance, transparency, and liquidity management than institutional vehicles. Fund administrators need to handle more frequent valuations, NAV calculations, and regulatory reporting. Compliance teams need to ensure that marketing materials meet investor protection standards and that leverage limits are observed.
The regulatory framework itself is still evolving. The European Commission has asked for ambitious simplification packages for financial services regulation, but implementation of ELTIF 2.0 is ongoing, and questions remain about how supervisors will treat liquidity mismatches and valuation disputes.
This is where external expertise becomes essential. Asset managers launching ELTIF structures or expanding into direct lending in new geographies often rely on consultants for fund structuring, regulatory compliance, and operational setup. Platforms like We Put You in Touch connect institutions with specialists in credit structuring, fund administration, and private debt compliance who can be engaged for defined periods without the overhead of permanent recruitment.
The economics make sense. A consultant with 15 years of experience in private credit fund operations, billing at €900 to €1,100 per day, can establish the infrastructure for a new ELTIF vehicle over a six-month engagement. That is often faster and more cost-effective than recruiting a permanent hire, particularly when the institution is testing market appetite before committing to a full build-out.
What Happens When the Cycle Turns
The question that hangs over private credit is not whether growth will continue. It is whether the structures built to support that growth can survive a real stress scenario.
Private credit outperformed during the 2020 downturn, largely because central banks intervened quickly and corporate defaults remained low. The asset class has not been tested in a prolonged recession where borrowers face sustained earnings pressure, refinancing becomes difficult, and lenders are forced to take control of companies or accept haircuts.
Closed-ended funds with long lock-ups can, in theory, ride out volatility. But if retail investors in ELTIF structures start demanding liquidity during a downturn, managers will face a choice: sell assets at distressed prices to meet redemptions, or gate the fund and risk regulatory scrutiny and reputational damage. Blue Owl chose the latter in February 2026. Others may follow.
The opacity that has allowed private credit to grow with limited regulatory interference is now a vulnerability. Supervisors in Europe and the United States are pushing for better reporting, more granular data on exposures, and clearer disclosure of valuation methodologies. The Banque de France noted that interconnections between private credit and the broader financial system are difficult to measure precisely. That is a problem when risks are spreading but no one can see where.
For the institutions entering private credit now, the opportunity is real, but so is the execution risk. The asset class rewards those who can underwrite well, monitor actively, and manage through cycles. It punishes those who rely on models, assume liquidity will always be available, or treat covenant-lite lending as a sustainable long-term strategy.
Europe’s private credit market is no longer emerging. It is established, institutionalised, and increasingly retail-facing. What it is not, yet, is fully tested. The next 12 to 24 months will show whether the growth of the past five years was built on solid foundations or on assumptions that only work when defaults stay low and liquidity stays high.
References
BNP Paribas Securities Services — Private capital: a new dawn for Europe?
Bloomberg — Apollo, BNP Paribas Close to European Private Credit Partnership (February 26, 2026)
France-Epargne — Blue Owl gèle les rachats d’un fonds de crédit privé : une crise de liquidité qui secoue les marchés (February 2026)
Boursorama — Blue Owl interrompt les rachats de parts de l’un de ses fonds (February 19, 2026, Reuters translation)
International Monetary Fund — Global Financial Stability Report, April 2024: The Last Mile (Chapter 2: The Rise and Risks of Private Credit – opacity, liquidity risks, and supervisory recommendations)
IMF Blog — Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch (April 8, 2024)
Banque de France — Rapport sur la stabilité financière, Décembre 2025 (thematic chapter on private credit development, interconnections with financial system, transparency requirements)
EY — Global Financial Services Regulatory Outlook 2026 (January 2026, regulatory simplification and private markets supervision)