Despite Storm Éowyn’s best efforts to make it a miserable day in London this Monday (27 January), Europe’s private credit professionals were all cheer as they huddled indoors at the Landmark Hotel for DealCatalyst’s second European Private Credit Conference.

Conference goers came into the gathering with a rather positive outlook for private credit, mirroring our outlook for the year. The expectation is that the asset class will thrive in 2025 — and overcome political and economic headwinds.

“There’s a pretty ideal backdrop for private credit,” one attendee said. “When you look at the macro point of view, we expect GDP growth to be relatively strong, one could expect oil inflation going down, and rates going down — so it’s pretty positive.”

Of course, 9fin’s editorial team was there in full force to snap up all the latest insights on the private credit market, including the impact of of AI, increased regulations, and the arrival of middle-market CLOs in Europe.

The AI unknown

The story of the week has undoubtedly been the emergence of Chinese AI firm DeepSeek’s advanced language model. US tech stocks took a hammering, but the reaction in credit has been far more muted.

Still nearly half of the attendees at the DealCatalyst event thought macro-political unrest would be the most disruptive phenomena in European private credit this year. However, panelists labelled AI as the biggest unknown in terms of the mid-to-long-term impact on credit quality.

“In the short term, all that's happening in the world will of course have a big impact on our market. Nevertheless, when you analyse companies, you find that the biggest fear is AI,” one panelist argued.

The rationale is that the private credit market has gone through higher interest rates, political unrest, and competition against the BSL market before. But the rise of AI is very much a new experience.

The proliferation of AI and continued digitalisation, panelists said, has heavily impacted investor appetite for the IT and software sector, which has traditionally been a key part of portfolios.

Pemberton’s debt financing to support Rivean Capital’s acquisition of pan-European tech consultancy Valcon and Kartesia’s upsized debt facility for cloud telecoms company Firstcom are two examples of early 2025 deals that have been signed in this sector. See here for 9fin’s private credit database, filtered for transactions involving European IT and software businesses.

But technology is also affecting investor strategies across other sectors, and whether it will hinder or support growth and efficiency of the firm is a fundamental question.

“We always ask ‘what is the risk that AI is going to replace what you guys are actually doing?’” one panelist said. “It will make some processes automatic, and we talk about the fears, but companies can also use AI as a tool to become more efficient in what they do.”

Impact on portfolio companies is one thing, but AI and cloud transition itself might bring on opportunities in new sectors, as the technology needs power, energy, and servers. This, panelists argued, has created a growing opportunity in the asset-backed financing space, as the data centre sector is rocketing.

“Those markets are going to become increasingly debt-funded, and you see things like data centres and fibre — there’s a lot of lending opportunities there,” a panelist concluded.

Regulating private credit

As private credit managers are increasingly raising capital from retail investors, panelists at the DealCatalyst event expected regulators to start paying more attention to the asset class.

According to one panelist: “There is more and more focus on the emergence of the ELTIF format and the increased number of partnerships with private wealth channels — regulators are very keen on making sure that everything is under control.”

Another panelist agreed, stating that when you expand into retail, it can be a big problem for regulators who want to intervene and make sure that “Mr and Mrs Smith's money is being well managed”.

Brad, Angelina and others should now be able to invest in private credit more easily. This week AXA IM announced that it has launched a private credit fund under the ELTIF 2.0 regulation. That fund, which totals just over €230m, provides financing to mid-sized companies and “enables individual savers to access an asset class historically reserved to institutional investors”.

The fact that the private credit label is expanding beyond vanilla financing (it spans investment grade, receivables, mortgages and asset backed finance, for example) could yet make regulators more watchful.

However, panelists did not expect regulators to become an outright hindrance to private credit. One panelist believed that at this stage, regulators are focusing on data collection in order to familiarise themselves with the market.

According to them: “Private credit is important for economic growth, and I think regulators know that — they don't want to just jump into new regulation before understanding this market first.”

Middle-market CLO growth prospects

The emergence of private credit (or middle-market) CLOs has been covered extensively at 9fin — see here for our CLO webinar and here for a follow-up on the liquidity benefits associated with this development.

Naturally, this was a hot topic at Monday’s conference,

“In the US, if you look at 2014, there was about $6bn middle market CLOs issuing that year, representing about 5% of the overall market,” one panelist said. “Fast forward 10 years, you're looking at somewhere just shy of $40bn of US middle market transactions and accounts for around about 20% of the overall US issuance.”

The only middle-market CLO we have seen in Europe so far is static, so a key question was whether we would eventually see reinvesting CLOs and perhaps more liquidity in the private credit loan market.

“That’s a hard thing to solve,” one panelist said. “Maybe there's an incentive for managers to trade loans to each other to try and build up a diverse pool of assets, but I don't think as a manager I would want to buy a small chunk of the loan for no control.”

However, BSL loans are tradable, so a bucket of syndicated loans could help bring reinvestment flexibility to the middle-market CLO space.

“BSL buckets could work as some sort off supplement. If you've had a repayment, and whilst you're working on that next deal to move in there from the private financial field, you could potentially use some BSL to cover that for a time being, because these are cash flow vehicles.”

If you missed us at the European Private Credit Conference, worry not — as the conference lead media partner, 9fin will also be in attendance at DealCatalyst’s private credit industry conference at Omni Hotel in Nashville on 12-13 May. We will also be attending the Global Private Credit conference in Abu Dhabi on 12-13 February. Otherwise, we will catch you next January, for its third European conference in London.