1. Park Square celebrated its 20th anniversary this year. How has the private credit market evolved since 2004?

I’d say the big themes in private credit growth over the last two decades are the banks retreating from the market, pension funds having a dedicated allocation to private credit, and a major change in acceptance from borrowers.

Private credit has gone from a minority sport to something that is very popular today. The capabilities of private credit firms to provide solutions have changed massively and banks have really withdrawn from the market.

When I founded Park Square, the way to get a really big buyout financed was from a handful of banks, which would take it on their balance sheets. They wrote tickets of about €250m, which is unheard of today. However, the banks that were doing this blew up, with a lot of bad debt. I think regulators learned that they need to be very watchful of banks and make sure that they don't take undue risk.

2. You held the final close of the European Loan Partners II programme in September — what three words would you use to describe the fundraising market?

Increasingly savvy, selective.

Bigger is not better. Obviously the big providers of all things finance will say that it’s all about fund size and AUM, but in our experience investors are recognising people who have long track records showing significant outperformance.

Three years ago the questions we would get during fundraising were “did you do the loan directly?”, “is there any syndicated lending in this?”, “how do you negotiate documents?”… Today it’s more about how many bad credits we have in our portfolio, what is on our watch lists, net IRR, and DPIs.

3. ELP II also marked the close of the second joint venture with SMBC — tell us a bit about the partnership. Why SMBC?

We started on this partnership almost 10 years ago. SMBC had acquired the GE Capital business in Europe, which at the time was one of Europe's largest direct lenders.

We wanted somebody who had a deep understanding of the markets and a very good origination platform, but also a common credit culture.

SMBC is essentially a leverage provider, and they are also helping on the origination side. The combination of the partnership with them and the structure they provide is really helpful to our investors in producing very attractive returns.

The joint venture has proved very valuable and differentiating.

4. What are the perks for private credit funds partnering with banks?

Each one of these partnerships is different, so there's no one common roadmap.

In our case, what's attractive is particularly the sizeable origination team, a sizeable portfolio, and the ability of the bank to do things that funds can't do, or don't want to do, including revolving credit facilities, super-senior revolvers and other things that funds typically don't like to do.

5. What opportunities are you seeing for public and private hybrid deals?

Attractively priced, broadly syndicated loans with a junior debt element is an appealing cocktail today mathematically. Two years ago, we were seeing these jumbo unitranches — this is much more competitive, this is back to normal, if not better than normal.

PIK-tranches in particular is something we are seeing a lot. We’re seeing a number of transactions where private equity firms need to inject some non-cash pay junior debt into the structure to delever senior debt, which has become very expensive with the base rates. Many high-quality borrowers want to pay down some of their cash-pay debt so that they can make their interest payments, but also invest into the business.

As private equity firms want to hold on to assets for longer, investors are clamouring to get capital back. That means that more private equity players are doing dividend recap transactions using PIK or preferred equity. We think that for those high-quality companies, that can be a very attractive opportunity.

Lastly, what makes sense from time-to-time are these sterling tranches — they typically require a premium as the CLOs are euro-denominated and don’t want to buy sterling. It can be very attractive to anchor an entire tranche, which is something we do out of our credit partners funds. Sterling tranches are right up our alley!

6. 2024 was a year of elections — how did that affect the private credit space?

The UK election obviously produced a Labour government — in the autumn budget we saw some tax changes, but it was not as bad as many people feared. Overall, for business services — which is where we spend most of our time — we see pretty limited impact. In terms of consumer-facing businesses, there is going to be pressure because I think some tax changes are going to have an impact on the consumer.

Otherwise, I don’t see any dramatic changes in the UK.

I would contrast that with the US, where animal spirits seem to be getting let out of the cage. I think those animal spirits will be helpful globally in increasing transaction activity, with a federal government which is decidedly pro-business and pro-transaction activity, focused on deregulation and removing impediments to business.

I expect a significant increase in transaction activity coming out of the US, but also occurring in Europe because US markets play such an important role. The activity levels in the US, and some of the steps that will take place there, will push the UK in a more commercial direction. To be competitive, the UK will need to respond and create a more commercially attractive environment.

7. Coming to the end of the year, how would you describe 2024?

It's been a fabulous year. We’ve had a very high level of transaction activity, much of that was concentrated in refinancing.

We are starting to see a pick-up in the leveraged buyout volume over the last few months, which is encouraging.

We’ve had a great year of investing. We’re in a low growth scenario in terms of GDP, particularly relative to the US, but in terms of services Europe is performing very strongly — even relative to the US from a PMI standpoint.

And our portfolio is in great shape, so we’re delighted with the year overall.

8. Looking forward, where do you think we will see the biggest opportunities in 2025?

Europe continues to be super attractive because fundamentally Europe lacks risk capital. It’s behind the US in terms of the formation of private credit capital, private equity capital and all sorts of risk capital.

There’s a real opportunity for European firms to provide that capital, both in terms of providing solutions when markets are attractive, but also stepping in when there are moments of dislocation, which will surely come as Europe gets more dislocated than the US due to the less well-developed capital market. That creates interesting opportunities.

I’m very excited about Europe, leveraged markets, and private debt markets globally.

9. As we’re approaching Christmas, what is the best Christmas gift you have ever given?

I like to work with my hands a lot and like “do-it-yourself projects”, so the most memorable gifts tend to be those I have built or made myself. One of my favourite projects was refurbishing a table for my daughter — although it took way longer than I would have ever expected.

I grew up in the US with my father and my grandparents on both sides being very handy, so I could fix anything from an early age. One grandfather had a wood lathe in his workshop, while the other grandfather had a metal lathe. So that is how that all came about.

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