Welcome to Up Close with Carlyle, where we look at the investment landscape from a different point of view in each edition by sharing insights from executives across our firm. Subscribe here to be notified of future editions.

As private credit expands across Europe, distinct market dynamics are emerging, shaped by differences in regulation, borrower profiles, and capital needs. This evolving landscape is redefining what scale and reach means for private lenders and borrowers in the region.

Against this backdrop, the key question becomes: how can investors best navigate a market defined by such distinct regional dynamics?

A Structural Shift

Private credit is now embedded at the core of Europe’s capital markets. What began as a niche alternative to traditional bank lending, has evolved into an institutional asset class that anchors corporate financing across Europe, with a projected annualized AUM growth rate of close to 12% through 2030.¹

This expansion reflects a structural rebalancing in how European businesses access capital. Unlike the United States, Europe remains a predominantly bank-led market (bank lending still accounts for roughly 50% of corporate credit in Europe, compared with around 25% in the U.S.)², however borrowers are acknowledging the inherent benefits of private credit which we believe to be grounded in certainty, flexibility and speed.

Significantly, this growth has not followed a singular path. Europe’s private credit markets are shaped by distinct legal, regulatory, and cultural dynamics that vary across different jurisdictions. Differences in regulatory regimes, documentation standards, and credit cultures have all produced diverse patterns of maturity across the continent.

As a result, Europe functions less as a unified market and more as a set of interlinked credit systems, each evolving at its own pace. Some markets are now deeply established, with sophisticated credit infrastructure and active institutional capital, while others remain in the more nascent stages of development. For credit investors, understanding and navigating these nuances is essential to building scale, maintaining discipline, and capturing compelling opportunities across the region.

The Rise of the Regions 

Europe’s private credit markets are expanding on multiple fronts, shaped by local structural shifts that together form a broader continental opportunity. In more mature markets, larger capital bases and consistent deal structures are supporting deeper liquidity and more efficient execution; in newer markets, reform and innovation are increasingly unlocking growth.

The next phase of growth is being defined by regional differentiation. While the UK, France and Germany remain the region’s most mature markets, with over a decade of institutionalization having produced consistent practices, deal flow is increasingly distributed across the continent, with Italy and Spain together recording more than 80 transactions last year, double the volume seen in 2023³.

This trend is supported by several drivers:

1. Structural Enablers
   Reform and innovation are fueling expansion. In Southern Europe, regulatory and legal adaptation is transforming markets previously seen as too complex for many lenders. In Italy, borrower-friendly restructuring laws long deterred private credit funds, however the widespread adoption of Luxembourg-based vehicles to manage enforcement risk has reshaped the market’s accessibility and appeal. Spain has followed a similar trajectory as banks retrench, opening space for alternative lenders to finance family and founder owned companies, which dominate the country’s business landscape, for the first time.
   
   Elsewhere, the Benelux region continues to outperform its size through cross-border deal flow, while Central and Eastern Europe is drawing new entrants as growth and under banking converge.
   
   Together, these structural enablers, from legal reform to regulatory innovation, are creating a deeper, more balanced European market. For investors able to connect these jurisdictions, the opportunity lies in navigating the diversity that we believe will define Europe’s next phase of growth.
2. Government led policy
   Policy-led investment in infrastructure, energy transition and defense is creating new demand for flexible capital solutions. This trend is particularly evident in Germany and France, though the need for increased capital in these areas extends across Europe. At Carlyle, we have seen a significant rise in the number of aerospace & defense companies seeking capital. Much of this demand comes from mid-sized suppliers that are critical to Europe’s industrial base yet lack access to traditional capital markets. Private credit is well positioned to fill this structural gap, offering the certainty and flexibility these companies need as Europe undergoes a once-in-a-generation rearmament.
3. The Case for Scale
   Private credit in Europe has entered an increasingly competitive phase as the asset class attracts record levels of capital. European private credit is currently a $530bn market and is expected to grow to $940bn by 2030.⁴ The influx of capital has broadened participation and intensified competition across the market, from large-cap financings to smaller, more bespoke transactions.
   
   In mature jurisdictions such as the UK and France, over 60%⁵ of transactions now attract bids from multiple lenders. This dynamic has compressed spreads and raised the bar for execution speed, origination quality, and structuring creativity.
   
   In this environment, scale, local presence and connectivity are critical. The firms that will lead the next stage of European private credit are those that can combine scale with the local insight required to deliver tailored capital solutions across this evolving marketplace.
4. A Broadening Spectrum
   European private credit continues to be dominated in terms of AUM and deployment by direct lending (69% of AUM by 2030)⁶. However, the market has also witnessed the rise of more niche lending strategies such as NAV financing and, albeit at a nascent stage, Asset-Backed Finance. These newer entrants are welcome additions to a maturing market and help solve new liquidity needs. The growth of Asset-Backed Finance has been well documented and represents one of the most dynamic areas of private credit today. Direct Lending will remain the dominant source of private credit, especially in more localized regions, while paving the way for wider use of the asset class across strategies. Opportunistic Credit is also a well-established part of the market, where we continue to build significant scale in providing capital solutions across the continent, bringing the flexibility across the capital structure that many borrowers increasingly require.
5. Flexibility of Capital
   Managers with the flexibility and expertise to lend across the capital structure will be the best placed to capture the next phase of market growth. As the market evolves, borrowers will be looking for more flexible forms of financing that not only provide them with more elasticity in future planning but also the ability to remain with the same lender for longer periods of time. We are seeing this first-hand, financing companies through our opportunistic strategy into more traditional direct lending instruments, and often into the broadly syndicated loan market. For regions where private credit is less prevalent, that flexibility offers a clear advantage.

Outlook: Navigating Opportunity and Complexity

Europe’s private credit market stands at an inflection point. What was once a collection of largely domestic markets has matured into an increasingly connected European ecosystem. However, core local norms remain, whether in the form of language, currency or credit culture. While deal flow from less traditional regions is increasing, successful managers will need to stay alive to those regional nuances.

Against that backdrop, Carlyle’s European Private Credit platform has remained highly active in Europe, deploying around ~€4.4 billion across 25 transactions, over the past 12 months. Activity has spanned across the continent, reflecting both the maturity of established markets and the growing depth of newer ones, underpinned by Carlyle’s eight regional offices. Moreover, this deployment has taken advantage of one of the key European characteristics: pricing and documentation. Given the lack of continental homogenization, European deal flow consistently prices wider than its US counterparts and often with tighter documentation⁷. This is primarily driven by a far less syndicated market, with fewer players and higher barriers to entry, reflecting Europe’s structural fragmentation and the predominance of relationship-driven lending.

Looking ahead, we believe that the key challenge lies in execution and vigilant due diligence. The market has seen several high-profile headlines – and some defaults that have, fairly or not, been attributed to the asset class. At the same time, new fundraising flows from private wealth channels into regions that are relatively new to this type of lending should be treated with enthusiasm. The opportunity is significant, but maintaining a diligent, detailed approach to underwriting remains essential to avoid unwelcome surprises.

¹Preqin, Private Markets in 2030: The Future of Alternatives, 2025
²Scope Ratings, “Private credit: singular risks but also opportunities for Europe with capital-markets reform,” 2025
³Deloitte, Alternative Lender Deal Tracker – Spring 2025, 2025
⁴Preqin, Private Markets in 2030: The Future of Alternatives, 2025
⁵Private Debt Investor (PDI), Regional Guide: Europe – Competition Overview, 2025
⁶Preqin, Private Markets in 2030: The Future of Alternatives, 2025
⁷PitchBook, European Private Debt Report 2024; S&P LCD, Direct Lending Market Update 2024

The views expressed in this piece reflect the perspectives of Carlyle.

If you enjoyed Up Close with Carlyle, follow us for more insights and thought leadership.