The fund has underwritten only a handful of deals and has struggled to fund-raise, 9fin sources said. Two of its private credit deals in Europe have been tracked on 9fin's database: A refinancing package to Bencis's Clinias Dental Group, a dental care services business in the Netherlands, and a €100m club deal financing Ardian-owned Staci's acquisition of Amware, which is a French transportation support firm.

“It only has a couple of assets in its direct lending portfolio, so I don't think that will be a problem. A bulk of the private credit strategy is actually CLOs, which it will keep,” a market source said.

Fidelity did not disclose the size of the fund when it was launched. But it stated that it was a Luxembourg domiciled closed-end investment vehicle, focusing on European companies with EBITDA of around €5-30m.

The direct lending investments will remain with Fidelity, but under a different team, 9fin sources said. Fidelity will partner with third parties to serve parties in the space, the firm said in a statement.

Fidelity's direct lending exit, comes as co-CIO for fixed income, multi-assets and private assets Andrew McCaffery steps down. Andrew Wells, president of Fidelity Canada, will oversee fixed income, multi asset and private assets, the statement said.

Fidelity’s European private credit division consists of its CLOs, large-cap loan business, private assets, CLO investment unit and, up to now, direct lending.

The firm started its private credit journey in January 2021 when it brought in MeDirect Bank's private credit team, led by Michael Curtis, who became head of private credit strategies at Fidelity.

This also pushed Fidelity into large-cap loan investing as the team brought with it a MeDirect CLO — Grand Harbour CLO 2019-1 — and this has been followed by a few other CLOs raised by Fidelity.

Fidelity's exit from direct lending was first reported by Pitchbook.

Fundraising struggles

Direct lending fundraising was a major issue for Fidelity. From the outset it moved slowly and didn’t really take off, until eventually the strategy got killed, market sources said.

“I think it was really unlucky with the timing,” a market source said. “It's a tough market and people knew it was struggling to fundraise. It's really important for sponsors to have certainty around funding.”

That said, established direct lenders such as Arcmont and Ares have been raising record-breaking funds, with Arcmont closing a €10bn fundraise in January and Ares aiming to raise €20bn for its latest direct lending fund. A recent 9fin feature showed that smaller funds have drastically lost market share in terms of capital secured, with almost 85% of global capital raised in private debt last year going to experienced private credit firms (those with four or more existing funds).

Fidelity's backtrack on its direct lending strategy may raise questions around the confidence in the market and the prospects for newcomers, however one source said the news does not worry them.

“I don't think this is reflective of the market,” they said. “There are other funds that were raised at the same time and are doing great: Pictet is doing great, Ambienta is doing great and Tresmares is doing great.”