Fidelity International is expanding into European business lending as asset managers seek to capitalize on gaps in the market following the financial crisis and recent banking turmoil.
Fidelity, which manages more than $700 billion in assets, is launching a fund that will provide secured loans to mid-sized European companies with annual revenues of around 5 million to 30 million euros.
The Private Credit team will operate a closed-end fund domiciled in Luxembourg with a focus on senior debt. It aims to make its first investment in the next few weeks.
The launch comes after BlackRock, the world’s largest asset manager with more than $9 trillion in assets, acquired private debt firm Kreos Capital, which lends to start-ups and technology companies.
The moves by two of the world’s most prominent fund groups underscore a shift into private credit, a sector that has grown into a $1.4 trillion industry. US asset managers Nuveen and PGIM have also made private credit buyouts in the past few months.
After the 2008 financial crisis, banks stopped offering some types of financing due to concerns that lending was riskier and capital requirements were stricter.
Bank lending has also been hit by the collapse of Silicon Valley Bank earlier this year and the takeover of Credit Suisse by European rival UBS AG.
“What we’ve seen with Credit Suisse and SVB is that instead of making it easier to bank, it’s more difficult, so we see that as an opportunity,” said Nick Haaijman, global head of private asset solutions at Fidelity International.
“It’s a growing market . . . investors recognize that this is an asset class in Europe where you can see a steady stream of income.” He added that the new fund would be the first in Europe’s direct lending space only fund.
Michael Curtis, who will co-manage the fund, said: “Returns look more attractive in this market than in years past. It’s a floating rate asset class driven by base rates and margins.” He added , the fund will also benefit from transaction fees on the underlying transactions.
While the direct lending industry has grown over the past decade, Curtis said, “there are far fewer players . . . focusing on mid-sized businesses.”
Fidelity said that despite the growing amount of funding in the direct lending market, there is a funding gap in the mid-sized corporate sector.
Direct lending funds raised about $125.9 billion 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.