Private Lenders in Europe Want In on the ‘Sell America’ Movement

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(Bloomberg) — They’ve long been a second thought in the US-dominated world of private credit, but fund managers in Europe are now getting a spike in interest from global LPs — and they’re eager to grab a piece of the “Sell America” movement.

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Limited partners, the investors at the top of the private credit investment chain, are turning to the region as a way to hedge volatility in their US assets. It’s part of a wider shift in allocations away from American investments at the center of trade wars and into Europe, which is less exposed.

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“LPs are saying we want more Europe, we’re weighted so heavily in US direct lending,” said Symon Drake-Brockman, managing partner of Pemberton Asset Management in London. 

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Decisions on where to allocate private capital aren’t made overnight, so it may take months for lenders in Europe to reap the benefits of this shift. Among more liquid strategies such as exchange-traded funds where cash changes hands daily, the trend is already underway. That’s as the euro trades near its strongest in three years against the dollar.

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No one is saying Europe is about to supplant America. But even a small tilt by LPs away from the US and into Europe would make a big difference. The US holds about $1.1 trillion of the private debt market compared with Europe’s roughly $505 billion, according to Goldman Sachs Asset Management estimates as of July 2024.

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The region has several things going for it. The kinds of small and medium-sized companies that borrow in private markets focus on services, which means they “appear relatively protected” from tariffs, according to David Allen, managing partner at AlbaCore Capital Group.

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Reaching consensus among 27 European Union members can slow down decisions. But next to the unpredictability of US policy, the EU’s deliberative approach and strong institutions are a source of reassurance to fund managers.

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“Europe has often been viewed as slow-moving, held back by its own red tape: this is now arguably its strongest asset,” according to Lewis Grant, senior portfolio manager at Federated Hermes. “Stability and predictability in bureaucratic processes is suddenly seen as attractive.”

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In Germany, one of the biggest sources of deals, Chancellor-in-waiting Friedrich Merz has pledged to deliver meaningful growth and loosened Germany’s so-called debt brake to finance a huge ramp-up in spending on defense and infrastructure.

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Contrast that with the disappointment on Wall Street, where bankers have had to dial back high hopes that US President Donald Trump would deliver an era of deregulation, pro-growth policies and a boom in dealmaking. Instead, his trade war and tirades against the Federal Reserve have chilled markets, putting M&A and leveraged debt deals on hold.