Private capital: a new dawn for Europe?

In a panel discussion hosted by BNP Paribas’ Securities Services business, senior professionals from GPs responsible for USD $1 trillion+ of private assets discussed how managers are innovating to capture this opportunity. This article summarises the investment case for Europe, notably private credit, and the importance of strong operational support to deliver scale.

The private capital industry will have a vital role to play in leading the essential round of investment that Europe requires to boost competitiveness and drive growth.

The 2024 Draghi report on European competitiveness estimated that investment equivalent to 5% of European GDP was required to implement the necessary structural measures to turbo-charge European economic growth^[1].

Mobilising private finance at scale was one of the report’s key recommendations for unlocking the investment capital Europe needs. It calls for the formation of a genuine European Capital Markets Union that unifies fragmented financial markets, eliminates regulatory friction points, and accelerates the volume of private capital flowing into the continent^[2]. In September, the UK’s Investment Association also launched its Foundations of Growth report, setting out how Europe can harness private markets to deliver long-term growth, innovation, and resilience.

These dynamics position Europe as one of the most attractive markets for private capital investors. Opportunities are emerging for private markets to supplement and co-invest into long-term government investment programmes in crucial strategic areas such as defence, infrastructure, artificial intelligence, technology and renewable energy^[3].

Europe: a hub for global private credit

There can be no denying that Europe has faced economic growth and productivity headwinds^[4]. However, behind the macro-economic headlines, and in the face of shifts in global trade and tariff policy, Europe presents a stable base for long-term investment and valuable option for portfolio diversification.

The European private credit market is a case in point, with global investors turning to Europe in growing numbers to expand credit allocations beyond the US market. The US has dominated private credit investor allocations during the last 15 years, with assets under management (AUM) approximately twice the size of the European market^[5].

However, as the US market has matured, the region’s sharp upward fundraising growth trajectory has steadied, and competition for deals has intensified. For LPs and investors, the natural step has been to expand private credit programmes into other regions. This has driven a meaningful increase in fundraising for multi-regional credit funds through the first nine months of 2025^[6]. At BNP Paribas, we are seeing increasing demand from non-European LPs towards investments in Europe, as investors leverage on this increasing optimism.

In addition to Europe’s appeal from a diversification perspective, the continent’s private credit market is underpinned by highly favourable investment fundamentals.

As the European market is smaller than the US, and more fragmented from a regulatory and legal perspective, European private debt managers can price their capital at a premium to their US counterparts, offering a 25- 50 basis points of spread enhancement versus US equivalents^[7]. Average margins on European direct lending deals have been higher than those in the US for two years^[8] and original issue discounts (OID) are regularly up to one point more than for comparable US transactions^[9].

European lenders have been able to lock in these returns without taking on weaker credits. European leveraged buyouts display higher interest rate coverage than in the US market – usually with lower leverage, higher positions in the capital structure, and borrower-friendly covenant packages^[10]. Additionally, European private credit has a long growth trajectory ahead, with non-bank lending in Europe and the UK sitting at 12%, versus market penetration of 75% in the US^[11].

A sense of urgency: GPs and regulators adapt to meet demand

Both GPs and regulators are alive to growing demand from global investors for exposure to European assets. They are adapting regulatory frameworks and investment structures to offer incoming investors with a wide range of pathways to deploy capital and meet specific needs.

The launch of a revamped European long-term investment fund (ELTIF) structure, ELTIF 2.0, for example, has seen a significant increase in ELTIF uptake, with private credit players leading the way. The European Parliament forecasts that by 2028 ELTIF assets could reach €100 billion^[12], supporting the growth and accessibility of private credit across Europe^[13].

The increase in new ELTIF funds is part of the explosion of fund structures across the liquidity spectrum, which fill the gap between traditional closed-ended private funds and open-ended retail funds. These ‘evergreen funds’ include a range of semi-open-ended vehicles that allow investors to access illiquid private markets assets through structures that provide some liquidity, typically on monthly or quarterly basis, at a set percentage of NAV.

Initially viewed by private credit managers as a structure to unlock retail capital investment, evergreen funds are become increasingly popular with institutional investors^[14], who value the flexibility the structures provide to manage cashflows, navigate denominator effect dislocation and adjust asset allocations. Institutional and non-institutional demand could see AUM in evergreen funds reach US$4.4 trillion by the end of 2029 – 63% up on 2024 levels^[15].

Investing in operational infrastructure and capabilities: building the foundations for growth

As global investors continue to expand and diversify their private capital allocations into Europe, GPs will have to ensure they have the right operational infrastructure and models in place to innovate and scale up.

Managers must invest in the right balance of people and technology, in-house and external support to ensure they can scale without increasing their operating costs, and meet their clients’ demands across an increasingly complex range of funds. In a fragmented region such as Europe, with different market practices, distribution structures and regulatory and tax regimes, local expertise is key. At the same time, growth in increasingly complex structures requires highly specialised expertise and digital platforms to produce new types of reporting, manage different types of subscription and redemption processes. Close partnerships with service providers, whether through a co-sourced or outsourced model, will be critical for GPs to manage liquidity effectively, and deliver a high level of client service.

Is Europe ready to lead?

In private capital, timing is everything. With such growing momentum in Europe, managers must understand where their business is positioned, how their strategy will be impacted, and how they can best take advantage of the opportunity. Growing capital sophistication, favourable market conditions and investor demand are all aligned. Now is the time to seize the moment.

[1] https://www.bnpparibas-am.com/en-cz/intermediaries/portfolio-perspectives/private-capital-in-europe-a-e3-trillion-investment-super-cycle/

[2] https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en.

[3] https://www.bnpparibas-am.com/en-cz/intermediaries/portfolio-perspectives/private-capital-in-europe-a-e3-trillion-investment-super-cycle/.

[4] https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en?filename=The%20future%20of%20European%20competitiveness%20_%20A%20competitiveness%20strategy%20for%20Europe.pdf.

[5] https://www.cvc.com/cvc-private-wealth/insights/2025/why-european-private-credit-belongs-in-your-portfolio/.

[6] https://media.privatedebtinvestor.com/uploads/2025/10/q3-2025-fundraising-report-pdi.pdf.

[7] https://www.apollo.com/content/dam/apolloaem/documents/insights/apollo-europes-private-credit-moment-wp.pdf.

[8] https://www.apollo.com/content/dam/apolloaem/documents/insights/apollo-europes-private-credit-moment-wp.pdf.

[9] https://www.apollo.com/content/dam/apolloaem/documents/insights/apollo-europes-private-credit-moment-wp.pdf.

[10] https://www.cvc.com/cvc-private-wealth/insights/2025/why-european-private-credit-belongs-in-your-portfolio/.

[11] https://www.aima.org/article/the-convergence-of-european-public-and-private-credit-markets.html.

[12] https://alternativecreditinvestor.com/2024/12/20/bnp-paribas-eltif-2-0-will-drive-growth-in-2025/.