To be published later this month, with exclusive data from Preqin, the report underpins the evolving trend of fewer funds securing more capital. In Q3, the average fund size was $2.765bn, with 20 funds raising $55.3bn. This is a rather drastic quarter-on-quarter increase of average fund size — as recently as H1, the average was $1.27bn, with $54.6bn raised by 43 funds.

In Q3 we saw not one, but two mega fund raises. First was Ares, which in July reached a record-breaking $34bn for its Senior Direct Lending III fund — more than double the size of SDL II.

In September, ICG followed suit with the announcement of its $17bn fundraise for its latest direct lending fund, a record level for European private credit fundraising.

Sometimes, more for one means less for others. This is making for fierce competition among smaller and newer funds. Market participants are keeping a close eye on HIG Whitehorse’s European business, as the firm is struggling to fundraise, with the majority of capital raised internally.

Whitehorse is not alone in having a difficult time persuading LPs to invest in a fund. In a couple of extreme cases we have seen funds giving up as a result. In May, Fidelity exited European direct lending, laying off 30 people and selling off its only two assets, while in June Polen Capital followed, deciding to ditch its European direct lending strategy, less than 18 months after partnering with Pemberton to enter the market.

It’s a market of polar opposites, and two of the deciding factors of what side you end up on are scale and track record.

“You need to have scale in this business,” a large-cap direct lender said at an IPEM panel in September. “Scale drives bigger financings to better companies,” they said, “better companies are often owned by the largest and best private equity managers, the best management teams have probably resulted in better credit risk, which has then led to better return, which has led to more capital being raised by that channel.”

A panelist on a different panel said: “We've seen new funds that didn't manage to really take off. It seems like fundraising in this asset class is more for people who have a good track record, a long track record, or a big fund.

“It's tougher and tougher to fundraise, and you need to show that you've got a history behind it.”

To IPO or not IPO…

… might be a question for HPS Investment Partners as BlackRock is considering buying the direct lending giant. At the same time, HPS is considering an IPO, which could value the firm at $10bn or more.

The potential acquisition follows a number of firms entering private credit through acquisitions. Most recently was US firm and Chelsea-owner Clearlake Capital, which in September reached a deal to buy European asset manager MV Credit.

The private equity giant lost out on Hayfin Capital, according to a well-placed source, whose management buyout was ultimately supported by Arctos.

Consolidation has been a long-anticipated trend in the private credit world, and a sign of the asset class maturing, according to market sources. Even here, the larger more established managers are in demand.

“There is a lot of consolidation that's happening, and then scale matters — scale in terms of the investment team, the local teams, the infrastructure behind the manager, the sales force, and the client base,” a panelist said at IPEM.

HPS certainly has scale, as it raised over $21bn for its sixth specialty loan fund in June. It has also been part of a number of large deals over the last months, including the $400m refinancing of PlayPower in October, the refinancing of Swedish Miss Group where it outbid incumbent lender Ares, and the £1.7bn financing of the CVC-led take-private of Hargreaves Lansdown.

European prive credit pipeline

At this point, saying it’s been busy might be an understatement — 9fin’s private credit team has added a total of 20 new deals to our European private credit pipeline.

EMK Capital is searching for a €450m refinancing of its Dutch installation and maintenance firm VDK Groep’s drawn debt. The sponsor has appointed Rothschild to advise on the refinancing, and is considering both private credit and syndicated financing options.

Hg Capital is looking to raise around £200m of junior PIK debt to fund a spree of acquisitions for its portfolio company Ideagen, which has £400m of existing senior debt in its capital structure.

Eurazeo is financing Waterland’s acquisition of German IT services provider Dacoso, which has an EBITDA of more than €10m. Eurazeo is providing leverage of over 4x, in addition to an acquisition facility.

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