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Ardian Private Credit marked its 20th year of operating in European direct lending spaces earlier this year. In that time, it has executed on over 160 deals with over 120 exits, managing or advising on around €8bn in assets across its London, Paris, and Frankfurt offices, according to its website.

With the continued growth of private credit since taking the market to new levels of market maturity, 9fin sat down with Mark Brenke, who joined Ardian in 2014 and now heads up private credit at the firm.

We asked Mark just how much is left of Europe’s growth runway amid broader structural forces of bank retrenchment, his experience of navigating fundraising and market cycles, consolidation, separating the cyclical from the structural, and where his footballing allegiances lie…

1. It’s been almost 12 years since you joined Ardian. How has its private credit offering changed in that time?

Our private credit platform has been active for much longer, since 2005. Over that time, the market has evolved significantly from a niche, subordinated debt opportunity pre-GFC in 2008 to becoming a mainstream financing solution. Banks have retrenched due to tighter regulation and declining suitability of the underwrite-and-syndicate model — especially in the mid-market. And this has only intensified over the intervening years with subsequent shocks and cyclical downturns.

But what is often under-emphasised as a driver for private credit is investor adoption. Over the past decade, investors in Europe have had strong risk-adjusted returns from private credit, with a meaningful premium over liquid credit. This has driven ongoing allocation. While on the demand side, private equity sponsors increasingly value private credit’s deliverability, speed and bespoke structuring. These dynamics have shifted private credit from a subordinated niche to a high-volume, first-lien opportunity.

2. Looking ahead, what opportunities are you seeing in the European mid-market compared to the US?

The US market is much more mature, having developed 30-40 years ago from the savings and loan crisis, which was very much the catalyst for banks to retreat and direct lenders to step in. Today, private credit penetration in the US is over 90% in terms of term debt. In comparison, Europe started much later and really started to evolve since the GFC. It is catching up, however, seeing similar structural drivers of bank appetite fading in the mid-market.

The degree of adoption in Europe also varies by country. Compared to the deeper, more homogenous US markets, Europe has a more fragmented legal and regulatory landscape as well as differing levels of bank competition on a country-by-country basis. This creates complexity and higher barriers to entry, with success for direct lenders such as ourselves requiring local sourcing, local execution, and local portfolio management.

While Europe likely won’t reach US-level penetration quickly and may level out below it, the direction of travel is clear, as the lower starting point means its growth runway is stronger. Across our main markets, the UK remains the largest and most mature — but it is still growing and much more significantly than in the US. France and Germany are our next core markets and are still growing strongly from lower bases. Historically less penetrated regions such as Scandinavia, Benelux, and southern Europe are seeing even faster growth.

Competition in the European mid-market exists but less so than in the US. This is for many reasons: 1) because European lenders are often competing against retreating banks unlike the US where it is other direct lenders; 2) pricing tends to be better; 3) risk positions are better; 4) the European mid-market remains a covenanted market, whereas in the US it’s increasingly cov-lite; and 5) Europe remains a high-control direct lending opportunity, whereas the US has increasingly gone down the club route.

3. Are there any particular sector opportunities Ardian is looking at?

We are business-model focused and sector-agnostic here at Ardian. What that means is we look for strong revenue visibility in our credit investments, often supported via a contracted or subscription-driven demand profile, as well as high cash generation and less cyclical, more non-discretionary underlying drivers.

These attributes are particularly prevalent in mature software and IT services companies, as well as certain types of financial services, healthcare, and B2B services. These have been our most active segments during my 12 years at Ardian and so, to a degree, there are some reinforcing mechanisms to some extent in returning to these sectors.

In defence, we see some similar business model attributes and investor attention is rising with a lot of political focus and increased European government spending in infrastructure more broadly. But it has not historically been a focus for us and any defence exposure would need to be aligned with our stringent ESG principles and criteria.

4. Amid exit difficulties and longer holding periods, can private credit continue its growth momentum in the current macroeconomic environment?

The simple answer is a very definitive yes. We see private credit growth having structural, secular drivers over the long-term rather than cyclical drivers. We have spoken about bank retrenchment over the past couple of decades — we don’t see that changing, especially with further regulatory changes that demand banks to continue focusing on improving their returns on equity.

Managers also remain disciplined and selective. From an investor’s point of view, European private credit has now very much established itself as an asset class and we’re seeing a continued increase of allocations.

5. On that note, what do you think of increased private credit interest in NAV financing? Is this increasingly part of Ardian’s strategy going forward?

NAV financing is a useful portfolio-level tool to generate liquidity for specific situations. For us, we do see it much more as complementary to our core mid-market, high-control direct lending strategy, where we are lending to specific companies as opposed to taking a portfolio-level view.

But look, the market is evolving. Ardian does have a NAV financing strategy and we have been investing in it for quite some time now.

6. How do you see private credit secondaries developing more widely, particularly via continuation vehicles and fund-to-fund transfers?

Secondaries are a similar story in its usefulness to generating or providing liquidity to investors amid the longer holding periods we are seeing for private assets of late. Especially on the private equity and infrastructure side. We are seeing quite a lot of interest and appetite among investors here, and while we have not established a dedicated private credit secondary strategy, it is something we are closely monitoring.

The case for continuation vehicles over fund-to-fund transfers is clearer and much stronger on the private equity side. CVs for private credit are a newer development. In some cases, it raises questions on why an asset should be put into a CV rather than going through a full refinancing process. But in other cases, especially on the private equity side, the case for longer-term holds for investors in an asset where you can see a lot of growth potential — I think it makes sense why a sponsor would want to do that.

7. Consolidation of private credit managers seems to be a trend of late — how do you expect this to play out looking ahead?

For any market that continues to mature, as is private credit, scale becomes more important. But scale alone is not enough — you need differentiating factors, such as experience as well as a consistent and disciplined approach across multiple fund generations and market cycles. Experienced managers will benefit from increasing deal flow from sponsor relationships built up over a long period, as well as from a track record in satisfying more demanding client requirements over asset selection e.g. ESG.

The consolidation in private credit we are seeing is less fund X acquiring fund Y — it’s more investors increasingly consolidating their allocations to specific managers, and in these managers building up a sufficiently long and consistent track record to benefit from it.

As to whether a new manager could launch and be as successful as it would have been 10 years ago, it’s clearly become a lot more difficult, given the maturity of the market nowadays. Capital is fungible but it’s hard to differentiate yourself without these years of proven experience, demonstrated locally in individual European markets. New entrants often end up compromising somewhere, whether that be on deal quality, pricing or terms, which in credit tends to sow the seeds for future underperformance.

8. Across your tenure as head of private credit, what have you learned about navigating different market cycles and downturns, from fundraising and deployment to returning investors’ capital?

At risk of repeating myself, it all comes down to a proven track record to navigate multiple market cycles. Discipline, adaptability, and a long-term perspective is key.

During my 12 years at Ardian, market opportunities have changed with each cycle, but our core principles of disciplined asset selection, rigorous risk management and selective deployment remained unchanged. We are promising our investors an all-weather strategy focused on fundamental business model attributes for a stable, consistent risk-adjusted return regardless of market cycle stages. Transparency and consistent communication to investors during fundraises is key.

Investors want to invest in managers that will not chase every opportunity, that know when to say no. Private credit investing essentially comes down to loss minimisation and avoiding underperforming assets. We are talking about an asset class where it’s largely contractual and therefore the loss rate is the key variable to differentiate between credit managers.

9. As someone who grew up in both England and Germany, and who works across both markets, it begs the question — who would you support in a World Cup final?

I’ve lost count of how many times I’ve been asked this question. I couldn’t possibly say! Fortunately, we are yet to encounter a final between the two in my lifetime…

I’m very proud of my roots in both countries and it probably feeds into my interest for both private credit markets. The UK is Europe’s largest and most mature, while in contrast, despite being a bigger economy, Germany is less advanced for cultural reasons. This owes to a more fragmented banking market with mid-market businesses historically working with local banks.

But the German private credit market has grown significantly in the last five years or so — and it’s the third largest of its kind in Europe. It goes to show how much local track record matters. Private credit is getting there but it is competing with local banks that have entrenched local networks built over years.

Hopefully I’ve sidestepped the football question well enough there!

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