Fidelity International is venturing into the European business lending arena, capitalizing on opportunities in the market following the financial crisis and recent banking upheaval. With over $700bn in assets under management, Fidelity is launching a fund that will provide secured loans to mid-sized European businesses with annual earnings ranging from €5mn to €30mn.
The fund, domiciled in Luxembourg and managed by the private credit team, will focus on senior debt and intends to make its inaugural investment in the coming weeks.
This move comes on the heels of BlackRock, the world’s largest asset manager with over $9tn in assets, acquiring private debt company Kreos Capital, which offers loans to startups and technology firms. Notably, other prominent fund groups such as Nuveen and PGIM have also made acquisitions in the private credit sector recently.
Since the financial crisis of 2008, banks have retreated from certain types of financing due to concerns about riskier lending and stricter capital requirements. Furthermore, bank lending has suffered from the collapse of Silicon Valley Bank in the US and the acquisition of Credit Suisse by UBS in Europe earlier this year.
“What we’ve witnessed with Credit Suisse and SVB is that the banks are facing greater challenges, so we view this as an opportunity,” commented Nick Haaijman, Global Head of Private Asset Solutions at Fidelity International. “Investors recognize this as a growing market, an asset class in Europe that offers a steady income stream.” Haaijman noted that this new fund will mark Fidelity’s first foray into the European direct lending sector.
Michael Curtis, co-manager of the fund, highlighted the appealing returns in the current market compared to recent years. He explained, “It’s a floating rate asset class, influenced by the base rate plus a margin.” In addition to returns, the fund will benefit from transaction fees on the underlying deals, Curtis added.
Despite the growth of the direct lending sector over the past decade, Curtis noted that there are significantly fewer participants focused on mid-sized corporates. Fidelity identified a gap in the market specifically targeting midsized corporate borrowers.
According to data provider Prequin, direct lending funds raised approximately $125.9bn in 2021 and $75.9bn in the first three quarters of 2022. In Europe, the figures stood at $45bn raised in 2021 and $25.7bn in the first three quarters of 2022.
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