Can private credit become a durable funding source for European growth?

By Michael Bolle, Co-founder and CEO, DecAltra

Private credit is no longer a niche corner of finance. It is an established asset class for investors and an additional source of funding for businesses. For companies, it can complement or provide an alternative to bank lending; for investors, it provides exposure to privately negotiated loans.

In this Perspective, private credit means privately negotiated, non-bank lending. This follows the practical approach used in ECB research. It includes lending through credit funds, as well as direct lending by some insurers, pension funds and other non-bank institutions.

European businesses fund much of their investment from retained earnings and cash reserves. When external finance is required, banks and leasing providers remain central, alongside private and public equity, bond markets and public support. Private credit can widen the options available to viable businesses that need a more tailored debt structure or do not fit a typical bank-lending profile.

This Perspective examines how private credit is growing, how it is serving businesses and investors, the risks and regulatory response shaping the market, and what is needed for it to become a durable source for European growth.

A market that is growing, but hard to measure precisely

The direction of travel is clear even if the size estimates differ. The ECB’s regional comparison shows that the United States remains by far the largest private-credit market, followed by the United Kingdom, Europe and the rest of the world. On a management-location basis, private-credit funds managed from euro-area headquarters had around €100 billion of assets under management in 2025, having grown at an average 14% a year since 2010. That measure excludes credit managed elsewhere but extended to European borrowers.

Other estimates capture a broader market. DNB puts US private credit at around $1.6 trillion in 2025 and Europe at around €500 billion, while making clear that no precise total exists because the definition is not settled. The Financial Stability Board estimates $1.5–2 trillion for the jurisdictions and instruments in its end-2024 assessment. The industry’s Alternative Credit Council reports $3.5 trillion of global private-credit AUM, with Europe accounting for close to 30%. These are not competing answers to the same question: they use different definitions, dates and measures such as loans outstanding, assets under management, fund domicile and manager location.

How private credit serves investors and businesses

For investors, private credit offers exposure to income from privately negotiated loans. Pension funds and insurers remain the main providers of capital: the ECB finds they accounted for 70% of commitments to global private-credit funds between 2017 and May 2026. The BIS explains that private credit can suit their long investment horizons and limited liquidity needs: the loans may provide contractual income, diversification and an illiquidity premium. Those are risk-return trade-offs, rather than guaranteed gains. Asset managers and other lenders deploy that capital through funds, while some insurers and pension funds lend directly. Retail access is expanding most visibly in the United States, where the FSB observes a growing role for retail investors through business development companies and registered investment companies. The FSB also reports growth in semi-liquid and evergreen funds in the United Kingdom, while retail participation in the euro area remains low but has recently started to pick up. This expansion makes transparent product design, suitable distribution and liquidity terms especially important.

For businesses, private credit is an additional funding channel. It can offer speed and certainty of execution, alongside a more flexible approach to loan terms, covenants and collateral. DNB notes that borrowers often cite faster and more flexible service; the FSB points to tailored finance for firms with higher credit risks or limited collateral. This can matter to viable companies whose cash flows, assets or financing needs do not fit a typical bank-lending profile. The underlying test remains the same: whether the lender can assess and price the risk appropriately.

The ECB’s conclusion is appropriately conditional: private credit could support long-term growth by channelling funds from long-term investors to innovative firms. This is consistent with its broader work on finance and productivity, which finds that better allocation of finance can help productive firms grow. Private credit contributes to this aim only when credit is well assessed, fairly priced and monitored through the life of the loan.

The concerns are becoming clearer as the market matures

The qualities that create flexibility also create challenges. Private loans are often illiquid and individually structured. They can be difficult to value because they are not traded continuously. Borrower leverage, concentration in sectors or sponsors, links with banks and private equity, and fund-level leverage can all amplify losses.

The ECB identifies credit quality, valuation uncertainty, leverage, funding risk, liquidity mismatch and incomplete data as the central vulnerabilities. Its recent stress analysis finds that direct losses from private credit alone would be limited for euro-area institutions in aggregate, but wider market spillovers could be more material. The FSB reaches a similar conclusion: the market has benefits, but has not been tested at its current scale through a prolonged severe downturn.

Recent events show how these vulnerabilities can surface. In the United States, large redemption requests from semi-liquid private-credit vehicles prompted several managers to apply their existing withdrawal limits in early 2026, according to the FSB. Litigation has also become more visible: O’Melveny’s Private Credit Litigation Tracker reports rising securities-fraud and fee-challenge claims involving business-development companies and credit managers, many connected to alleged valuation, disclosure or fee conflicts. These cases are largely at an early stage and their allegations have not been determined by courts. In Europe, the ECB identifies deteriorating interest-service capacity among some private-credit-backed borrowers, concentrated exposure to sectors such as software, and significant cross-border funding links. The FSB also finds that broader measures of default are trending upwards and that payment-in-kind borrowing may signal deteriorating credit conditions.

Regulation and the standards for a sustainable market

Regulators are responding to the growth of private credit with frameworks designed to support a resilient market. In Europe, the revised Alternative Investment Fund Managers Directive (AIFMD II) sets requirements for AIFMs managing loan-originating AIFs, including effective loan-granting, credit-risk assessment, administration and portfolio-monitoring processes. It also introduces leverage limits for loan-originating funds.

At the same time, the ECB and FSB are developing the wider picture through better data, more comparable definitions, visibility of cross-border exposures and closer analysis of links with banks, insurers and private equity. Their work also keeps attention on valuation practice, liquidity terms, governance and the ways stress can move through connected parts of the financial system.

The Australian Securities and Investments Commission’s principles for private-credit providers are not European rules, but provide a useful practical benchmark. They cover stewardship, organisational capability, transparency, conflicts, governance, valuations, liquidity and credit risk. Its credit-risk principle calls for standardised assessment and monitoring frameworks, documented decisions and risk ratings, regular borrower reviews, early-warning escalation, portfolio stress testing and consistent impairment processes.

The common thread is clear: a growing market needs processes that make credit decisions, valuations and portfolio oversight consistent, well governed and open to review.

A constructive path for European growth

Private credit can help Europe connect more long-term capital with productive opportunities. It can diversify the financing available to businesses and reduce reliance on a single channel of credit. Its long-term contribution will depend on whether growth is accompanied by strong underwriting, transparent valuation, effective monitoring and governance that investors and supervisors can trust.

In DecAltra’s view, those standards make intelligent decision infrastructure increasingly relevant. It should connect source information, financial analysis, underwriting judgement, covenants, approval records, borrower performance, valuations and portfolio reporting. The purpose is not to automate professional responsibility away. It is to make the basis for a decision visible, reviewable and reusable when circumstances change.

Private credit can become a durable source for European growth when flexible finance is supported by disciplined underwriting, transparent valuations and effective monitoring throughout the life of a loan.

Written by DecAltra. This Perspective interprets the research cited below; it does not represent the views of the cited institutions. Market-size estimates are not directly comparable because they use different definitions and measures. The conclusions on decision infrastructure are DecAltra’s own.

Research references

1. European Central Bank. Stress in global private credit markets and its implications for euro area financial stability. Financial Stability Review, May 2026.
2. De Nederlandsche Bank. Private credit: what is it and how does it work? 2026.
3. Financial Stability Board. Report on vulnerabilities in private credit. 6 May 2026.
4. Bank for International Settlements. The global drivers of private credit. BIS Quarterly Review, March 2025.
5. European Investment Bank. Investment Report 2024/2025: Innovation, integration and simplification in Europe. 2025.
6. Alternative Credit Council. Strong growth sees private credit market reach US$3.5 trillion. 9 December 2025.
7. O’Melveny. Guide to recent private credit-related litigation. 2026, regularly updated.
8. European Parliament and Council. Directive (EU) 2024/927 (AIFMD II). 13 March 2024.
9. Australian Securities and Investments Commission. Principles for private credit funds done well. November 2025.
10. European Central Bank. Low firm productivity: the role of finance and the implications for financial stability. Financial Stability Review, November 2024.