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Europe will help private credit grow to $1trn

Loan_applicationPrivate credit funds, which help fill the lending gap left by retreating banks, could have as much as $1 trillion (€851 million) of assets under management by 2020, a trade body says.

The industry currently manages $600 billion in assets and has grown 14-fold since 2000, said the Alternative Credit Council (ACC) quoting industry data.

Small-to-medium sized businesses are the main recipients of private loans (34%), said the ACC in its ‘Financing the economy’ report. Large businesses receive 22% of all lending.

Jack Inglis, chief executive of the Alternative Investment Managers Association, to which the ACC belongs, said private credit had become a “permanent feature” of the lending landscape and that performance across the industry had been strong relative to many other asset classes.

The report, citing a Preqin figure, says direct lending funds reported 10-15% internal rates of return on average.

However, “dry powder”, or available capital is about a third of the industry’s total assets and this is the lowest level for several years. In the 2000-2008 period, dry powder was frequently close to 50% of total assets, according to Preqin data quoted by ACC.

The survey noted that beyond the key markets of the US and the UK, managers nominated Germany, France and Canada as countries with significant opportunities for lending growth.

Regulatory reforms in Europe and Asia-Pacific are supporting the sector’s market expansion, the ACC said.

Loans between $25 million and $100 million in size are the most commonly targeted by private credit fund managers.

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