Fidelity pushes into European corporate lending as banks retreat

Fidelity International is expanding into European business lending as asset managers seek to exploit gaps in the market after the financial crisis and recent banking turmoil.

Fidelity, which oversees more than $700bn, is launching a fund that will make secured loans to midsized European corporates with annual earnings of around €5mn to €30mn.

The private credit team will run the Luxembourg-domiciled, closed-end fund with a focus on senior debt. It aims to make its first investment in the coming weeks.

The launch comes just after BlackRock, the world’s biggest asset manager with more than $9tn in assets, bought private debt business Kreos Capital, which provides loans to start-ups and technology companies.

The moves by two of the world’s most prominent fund groups underscore the shift towards private credit, which has grown into a $1.4tn sector. US-based asset managers Nuveen and PGIM have also made private credit acquisitions in the past few months.

Banks pulled back from providing certain types of financing after the financial crisis in 2008 because of worries about more risky lending and tougher capital requirements.

Bank lending has also been hit by the collapse of Silicon Valley Bank in the US and the takeover of Credit Suisse by rival UBS in Europe earlier this year.

“What we’ve seen with Credit Suisse and SVB is that the banks don’t have it any easier, it’s more difficult, so we see this as an opportunity,” said Nick Haaijman, global head of private asset solutions at Fidelity International.

“This is a growing market . . . Investors recognise it’s an asset class in Europe where you can see a steady income stream.” He added that the new fund will be its first in the European direct lending sector.

Michael Curtis, who will co-manage the fund, said: “Returns are looking more attractive in this market than they have done in the past few years. It’s a floating rate asset class, driven by base rate plus a margin.” The fund will also benefit from transaction fees on the underlying deals, he added.

Even though the direct lending sector has grown over the past decade, Curtis said there are “far fewer participants . . . looking at mid-market corporates”.

Fidelity said despite the growing number of funds in the direct lending market, there was a gap in the midsized corporate sector.

According to data provider Prequin, about $125.9bn was raised by direct lending funds in 2021, and $75.9bn in the first three quarters of 2022. In Europe, $45bn was raised in 2021 and $25.7bn in the first three quarters of 2022.