Private Credit - “Follow the Funding”

The conversation still mixes apples and oranges. Two reminders after following recent discussions among market participants (including Apollo, who just posted an overview on this):

1. 𝗖𝗿𝗲𝗱𝗶𝘁 𝗶𝗻 𝗮𝗻𝘆 𝗲𝗰𝗼𝗻𝗼𝗺𝘆 𝗰𝗼𝗺𝗲𝘀 𝗳𝗿𝗼𝗺 𝗼𝗻𝗲 𝗼𝗳 𝘁𝘄𝗼 𝗽𝗹𝗮𝗰𝗲𝘀: 𝗯𝗮𝗻𝗸𝘀 𝗼𝗿 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀.

2. “𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗰𝗿𝗲𝗱𝗶𝘁” 𝗶𝘀 𝗻𝗼𝘁 𝘀𝘆𝗻𝗼𝗻𝘆𝗺𝗼𝘂𝘀 𝘄𝗶𝘁𝗵 “𝗹𝗲𝘃𝗲𝗿𝗲𝗱 𝗹𝗲𝗻𝗱𝗶𝗻𝗴.” By some estimates, the vast 𝘮𝘢𝘫𝘰𝘳𝘪𝘵𝘺 of private credit is 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁-𝗴𝗿𝗮𝗱𝗲 exposures (mortgages, asset-backed finance, insurance portfolios, etc.). The highly leveraged slice that drives headlines is materially smaller.

Why this matters:

• Public markets are not automatically “liquid” when stress hits. Liquidity can thin out exactly when you need it most; and concentration + passive flows do not help.

• Private markets are not automatically “opaque” or “risky.” Sometimes you get more information and tighter documentation, sometimes you don’t. 𝗨𝗻𝗱𝗲𝗿𝘄𝗿𝗶𝘁𝗶𝗻𝗴 𝗾𝘂𝗮𝗹𝗶𝘁𝘆 is the real separator.

For Europe, the stakes are high. 𝗧𝗵𝗲 𝗻𝗲𝘅𝘁 𝗱𝗲𝗰𝗮𝗱𝗲’𝘀 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗻𝗲𝗲𝗱𝘀 𝗶𝗻 𝗲𝗻𝗲𝗿𝗴𝘆, 𝗶𝗻𝗳𝗿𝗮𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲, 𝗱𝗲𝗳𝗲𝗻𝗰𝗲, 𝗮𝗻𝗱 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝗶𝗮𝗹 𝗰𝗮𝗽𝗮𝗰𝗶𝘁𝘆 𝗿𝗲𝗾𝘂𝗶𝗿𝗲 𝗹𝗼𝗻𝗴-𝗱𝘂𝗿𝗮𝘁𝗶𝗼𝗻 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴. A bank-centric system is excellent for short-term credit, but it is not designed to hold all of that long-term risk (and, likely, the “type” of risks) on bank balance sheets.

So the right question is not “private vs public.” It is:

• 𝗪𝗵𝗼 𝘂𝗹𝘁𝗶𝗺𝗮𝘁𝗲𝗹𝘆 𝗵𝗼𝗹𝗱𝘀 𝘁𝗵𝗲 𝗿𝗶𝘀𝗸 (and with what leverage)?

• 𝗛𝗼𝘄 𝗶𝘀 𝗶𝘁 𝗳𝘂𝗻𝗱𝗲𝗱 (stable long-term liabilities vs runnable funding)?

• When credit moves outside banks, the key issue is not who lends, but 𝗵𝗼𝘄 𝗿𝗶𝘀𝗸𝘀 𝗮𝗿𝗲 𝘀𝘂𝗽𝗲𝗿𝘃𝗶𝘀𝗲𝗱 𝗮𝗻𝗱 𝗰𝗮𝗽𝗶𝘁𝗮𝗹𝗶𝘇𝗲𝗱.

At the Centre for European Transformation, this is exactly the lens we use when we talk about financing Europe’s transformation: “𝗙𝗼𝗹𝗹𝗼𝘄 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱𝗶𝗻𝗴”

𝗖𝘂𝗿𝗶𝗼𝘂𝘀 𝘄𝗵𝗮𝘁 𝗼𝘁𝗵𝗲𝗿𝘀 𝘁𝗵𝗶𝗻𝗸: in Europe today, what is most misunderstood about the shift from bank credit to investor-held credit? If you want to discuss further, please reach out.