European Direct Lending Report 2025

Hello. Good afternoon. For those that have joined already, just to let you know, we’ll give it a minute or two before we officially kick off just to allow everybody to connect. Again, for those that have joined already, we’ll give it one more minute before we kick off so that everybody who’s registered has joined. Again, for those that have just joined, we’ll give it one more minute. We’ll kick off very shortly. Okay, it’s two minutes past two. I think we’ll kick off now. There will be people joining I’m sure in the next minute or two. So good afternoon, good morning, and actually good evening to everyone. I know that people have joined us for this webinar from across the globe. We’re very pleased to welcome you to this webinar today during which we will discuss the findings that were revealed in the second edition of the European Direct Lending Report, which we produced once again in partnership with the Oxford University’s SAID Business School. I’m joined today by Tim Jenkinson, Professor of Finance at the Business School and a leading authority on private equity and Simon Drake Brockman, Co Founder and Managing Partner at Pemberton. Before we kick off, I wanted to just let the audience know that we will have the ability or you have the ability to ask questions all throughout the webinar by using the Q and A functionality. That is at the top of your screen in the menu, the fourth icon from the left. So if you open that you can type in your questions. Feel free to do so all throughout the webinar. And with that said and without further ado I shall hand over to Tim to kick us off. Over to you Tim. Thanks very much, Gunnar, and it’s nice to be here today with Simon. We did this four years ago, Simon, which is so it’s nice to nice to see you again. This the the first version of this the first edition of this report that we did in collaboration with you was back we produced it during the first year of the pandemic, and it was published in in q one twenty twenty one. And now we’ve, we’ve we’ve this is the second edition four years later. Clearly, quite a lot’s happened in that four years, some positive. The pandemic’s disappear you know, gone away largely. But we’ve had a huge inflationary spike, a major war in Europe, historically quick rise in interest rates. None of those things are obviously good for the private credit market, but and direct lending market. But how’s it been in summary over the last four years? Yeah. As you touched on, Tim, you know, it’s been an extraordinary four years. You know, I’ve been in this industry for thirty five years, and I don’t think we’ve had a series of events like we’ve seen between, you know, two thousand and twenty and today. And I suppose the the positive news is private credit has held up incredibly well. And and sitting back and looking at the, you know, pandemic going into an energy crisis, going to an interest rate adjustment and because of inflation, It’s an interesting concept. I think there was two fundamental differences this time around to perhaps what we experienced in two thousand and eight, which saw levered finance companies coming under a lot of pressure. And I think the first one was, you know, the deal structures this time around are very, very different. You know, private equity has put in a lot more money, so fifty percent plus in equity into these companies, which means that there’s a lot more downside protection for the lender in the transactions. And then secondly is the type of businesses that private equity has been focused on, you know, much less CapEx intensive, and therefore, you know, they’re being focused much more, I would say, on the new economy or growth parts of the economy where there’s substantial demand and an opportunity to bring together smaller businesses to create much larger pan European players. So, you know, the health check, I think, has been pretty positive for private credit. I think the returns have shown that. I think all the managers have, you know, a small number of companies where they’ve had to intervene and actually get involved in taking over the businesses, but even those businesses are now, I think, performing as we come out of the interest rate cycle, the inflation cycle, and, you know, we’re starting to see more growth in the European market. Yeah. We’ll dig into a few of those as we go through the webinar. But in just in terms of sort of assessing the scale of things now, I think one of the surprising things that which we’ve which we’ve we discovered when sort of trawling across all the data, and the data is not always easy to get in the in the private debt markets. Is that, you know, AUM assets under management was now around one point six trillion euros, dollars. Sorry. Much the same, but dollars. And what’s driven that, do you think? Obviously, that must and and at the same time, we found that investors generally either wanted to maintain or increase their allocation to the private credit market. What do you think has been driving that? I think, you know, if you look at the US market versus the European market, I think there’s, you know, a number of very, very significant differences about the two markets. Clearly, the US markets or, you know, the the banks set back in the late nineties, early two thousands as you had the consolidation of the regional banks, and there was a series of managers, you know, now a prolific number of managers in the United States who came in to fill the gap in that lending. You know, when things changed post two thousand and eight, you know, nine, in Europe, it was a different case. I I think Europe was still several decades behind the United States in what I would call sector consolidation. You know, when the currency came in at ninety nine, we had a m and a boom in large cap buyouts, and that was, you know, the kind of the creation of large private equity firms, CBC, EQT, and others in the European marketplace. But many of those businesses, I would say, were much more focused on old industry, and so, you know, stuff in retail, stuff in industrials, etcetera in that space. Post two thousand and ten, the the focus started to move across into the mid marketplace. And I think private equity in Europe had not really been focused in the mid market, and what you’ve seen in the kind of next decade is private equity realizing that they can acquire businesses in Europe and consolidate them on a pan European basis to create champions in the future, which look very similar to the multibillion turnover mid market companies in the United States. And and that demand or that opportunity set for private equity means that they needed the financing. The banks have withdrawn because of regulation, which has enabled managers like ourselves to obviously grow significantly in the European marketplace and for investors to find highly attractive assets. Yeah. And indeed, that was what the the regulatory issues were something that we focused a lot on in the first edition of this of the report where that seemed to be driving a lot of a lot of the initial growth in the sector. In terms of the the, for those who may not be so familiar with the with with what you do, clearly, the report is mainly about the direct lending side of it, which is about half of the private credit market, we we think. But give us a sense as to what’s the balance of the your your clients or your portfolio companies are. I know that there’s been quite a few a fairly large proportion is to private equity backed deals. But Yeah. What what roughly speaking, what’s the sort of balance, and why do you think it’s particularly taken off for private equity funds who find your form of finance debt financing more attractive? I think if if you go back so, you know, we are nearly exclusively financing private equity firms inside of Europe, and that’s primarily because true family owned businesses in Europe operate on a much, much lower leverage multiple, so one and a half, two times. And therefore, you know, they’re not willing to pay up for the financing that a private equity firm does who’s leveraging a company four or five times when they acquire them. But I think if you, you know, come back and and look at the industry growth in that space, you know, we now have a range of three different, you know, financing funds sitting inside of Pemberton, our senior loan fund, which is looking at more double b type credits, so slightly larger, more mature businesses. We have our traditional, I would say, uni tranche buyout fund, which is focusing on the single b part of the market and four and a half to five and a half times levered. And then we have our strategic capital fund, which is really looking at providing solutions in the capital structure all the way from senior down to equity, where we’ll participate as minority partner inside of a private equity deal. And I think, you know, that maturity of breadth of product means that if you’re an investor today, you can have a range of investments in direct lending, but looking at different parts of the market. Yeah. And and that’s really where it’s become attractive. You know? I started my career in fixed income and used to have, you know, investment grade, then you had crossover, then you had high yields, and so fixed income portfolios had a range of different products that you invested in, and you’re now seeing that translate into the private markets where you can you can create a similar range of non investment grade lending or or investments for LPs. Yeah. And we’ll come on to a couple of those new areas in a minute. I should just stress what Gunnar said at the start, which is that if you’ve got questions that you’d like to ask along the route, put them in, and I will try to take a selection of them and give them to and ask Simon the question as we as we go along. So don’t don’t leave it to the end. But going back to the, if you like, the core bit of your business, which is lending to private equity funds who are doing doing transactions, What we discovered in the report is it’s not it’s it’s not obvious that you compete on price as it were with these with the with the alternatives, like syndicated lending or high yield bonds or things like that. So what is it that you do? What what why are you more attractive to the private equity sponsors as a source of debt financing, do you think? Well, I think I think two things. You know, firstly is I think public markets have become much less reliable as a financing source. And, you know, we’ve seen through the pandemic, we saw it in, you know, two thousand and twenty two, where public markets get completely frozen, and the investment banks don’t want to underwrite, and therefore, it’s challenging for the private equity firms to continue trying to get their deals done on a timely basis. And I think the, you know, scale of the private debt business today means that it’s much more attractive to go to, you know, one firm, possibly two firms, and put something together where, you know, they have certainty of funding, they commit, and they can get the deal done on a very, very timely basis. The second factor is obviously you can tailor the deal much more into the actual transaction that they’re trying to do. So cash flow is gonna be a little bit tight in the first years. You can give them some optionality around, you know, picking a, you know, one or two coupons in that space or, you know, structuring the deal, you know, in a way that you can bring in a revolver structure and other bits and pieces. So I think it’s the tailoring and reliability of of access of funds. And certainly, when I talk to the managing partners of these firms, their view is, listen, if we’re paying a slight premium, we we wanna get the deal done, and, you know, the timeliness and effectiveness of getting it done means that syndication isn’t really attractive as it used to be, even if it can be slightly cheaper. Yes. Indeed. In the in the the the legal differences which were in which were in the report, very interesting, the Latham Watkins sort of report at the end. It it did mention pick, the pay in kind ability so that you don’t have to necessarily pay the interest every every quarter or every well well, however, what the frequency is. Does that that that is an an an important attractive comparative advantage, is it, of of direct lending, that that ability to to give more flexibility for especially in the early years, that’s valued, you think, a lot by sponsors? I think I listen. I think it’s an optionality that can be put into the documentation. You know, the the vast vast majority is cash paid on time, you know, in in that space. But, you know, we’ve lived in an unpredictable world now for, you know, five plus years with wars and other bits and pieces, and I think if you can tailor something or you can go and negotiate directly with the core lender, it’s so much easier. You know, I ran a huge syndication business when I was at the bank, and, you know, you’ve got, you know, forty, fifty, maybe a hundred investors with CLOs and all of that in your deal, and if something happens inside the business, which isn’t life threatening for the business, but it may need some short term cash flow flexibility, it’s incredibly difficult to put that together. And then if distressed funds get involved, you may not be able to put it together at all. And I think it’s just that reliability means that the lender like ourselves is gonna be a genuine partner. We’re gonna come up with a sensible solution. And you saw that time and time again through COVID, where private equity put money in, we worked together, we gave them an interest rate holiday for six months, etcetera, And then the businesses came out of COVID and and have come through a huge adjustment over the last couple of years and performed well. And I think it’s just a much more tailored solution and a much more, I think, you know, partnership approach in what we’re doing. Yeah. And do you think that I I it’s it’s still a bit early to say because the data doesn’t necessarily give you much of this yet. But do you think that the experience of COVID was it’s not that there isn’t there aren’t defaults that can happen when bad idiosyncratic shocks like COVID or actually, that’s a systemic wide shock like COVID comes along. But it’s almost like the loss given default, is less than people had anticipated. You know? Obviously, with COVID, there were some companies that couldn’t pay their their debts, but, actually, it’s that flexibility to renegotiate that is valuable. Is is that one of the lessons, do you think? Yeah. I I think anyone who’s been in credit for a long period of time realizes default is not the benchmark. It’s loss given default that’s the real benchmark you’ve gotta be focused on. And, you know, I go back to my earlier point, you know, why it’s so much more robust is if someone’s putting in fifty, fifty five percent equity, you as a lender have a lot of a lot of downside protection in that space. And if you go back to two thousand and six, seven, and eight, you know, the the equity checks back then were somewhere between twenty five and thirty five percent, and and in industries which were very, very cash flow demanding because they had high CapEx. So, you know, it’s a very, very different industry from that perspective, and I often say, you know, COVID got management teams match fit, and then we went into a huge economic adjustment with, you know, the energy crisis, inflation, and interest rates. But they managed that much more effectively because of the COVID shock that really got people thinking about, you know, maximizing their balance sheet in a way that they could deal with some of those issues. Yeah. Now the other one of the other things which comes out in the report is the is the majority of direct lending is floating rate, I think. And so, therefore, what happened as interest rates started shooting up? Like, what did you see in your portfolio companies? What and and and did you have to all go on high alert to make sure that the these weren’t or, you know, that the, you know, that you had to monitor what was going on within the companies. But give us a sense as to what happened as we had this sort of historically quick increase in interest rates. Yeah. And, you know, once again, you know, there was only, you know, a modest percentage of them that had done interest rate hedging. You know, private equity had felt because of such a long period of zero interest rates that, you know, they had moved away from them. So it was an adjustment, but I think one in which the the fact that the interest burden was going up without having huge, you know, capital expenditure inside the business meant that they could make the adjustments while the business passed on what became inflationary costs on the back of that In that space. And so, you know, yes, it squeezed margins. Yes, we saw a contraction in EBITDA, you know, for kind of twelve month period, and then we gradually started moving into a growth phase again in that space. So, you know, fortunately, I think in Europe, the rate move was much less than the US, and therefore, haven’t seen as much pressure on interest burden as you probably are going to and are seeing in the United States, where rates staying where they are for such a long period of time, I think, is really putting some pressure. And if you have a slowdown in the economy, as we’re seeing, then I think that’s gonna be, you know, a more challenging process in the United States. Yeah. So I suppose that’s an important point, isn’t it, that real interest rates were actually moving all over the place when post inflation because which did did enable the companies to pass on some of the interest costs through to final prices, I guess. So it’s not quite the same as the real interest rate tripling in that period. Exactly. Yeah. Yeah. Now the one of the other things we sort of come up within the report is that there’s still a bit of a gap between Europe and the US, but it seems to be a gap that is shrinking over time as you would expect. So US early mover in this, pretty high AUM in the US, and Europe sort of catching up over time. Is that process continuing? Is there convergence happening? Do the sorts of deals or the scale of deals you can do in Europe, are they are they much different now than what can happen in the US? Yeah. I I would say that you’ve got, you know, a a number of key differences. So if you go back to when, you know, we set up Pemberton ten years ago, the US market, obviously, from an AUM point of view, was much, much larger. Europe was in the very embryonic stages. But what you have seen is, a significant growth in private equity capital coming into Europe over that ten year period. And, you know, what people often forget when they talk about, you know, is there too much capital coming into the market from LPs? You know, a company we invested in in or financed in fund one, you know, for seventy five or a hundred million, that company ten years later is probably to, for the next round of private equity buyout, a three, four hundred million quantum of debt. And so as you go through the consolidation process of buying a business and then putting add ons into that business and developing it, the when that business is sold on, the amount of debt for financing in the next sale is gonna be substantially higher. So you’ve got two, I think, positive factors, which is more companies coming to market, and I think the experience in COVID and post the interest rates and energy crisis meant families became much more open to the idea of bringing in private equity as a partner or, you know, possibly selling to a private equity firm. So the transaction volumes went up. And then the refinancing of the old deals that I can say has ever sold, meant that you need a much larger quantum of debt in in those businesses. And so if you look at the you know, in my mind, if you look at the amount of deals versus the volume of capital, Europe is still short capital. And the telltale sign to that to me is, you know, we get an extra, you know, hundred basis points in margin, we get a better covenant package and documents inside of Europe, and the upfront fees in Europe are significantly higher than they are in the United States. And private equity wouldn’t be giving us the benefit of those three factors if they weren’t still looking to get their deals done on a timely basis, and there’s a limited supply of capital to get it done. Yeah. So not dissimilar from the private equity industry where if you, at the end of the day, if you look at the performance of the private equity industry, like, relative to European private public markets, it’s actually been stronger than in the US. It’s it’s sometimes not not widely acknowledged. I think that the evidence in the report is it’s sorta similar in the in in the in the private direct lending market, the the returns for the funds have, if anything, been higher than the returns in the US. But that sounds in both cases, one can’t predict that will necessarily go on because that may just may just attract competition, I would guess, at that stage. Yeah. Listen. I I I think that’s fair. You know, there will be more interest in coming to Europe for sure, but I think Europe has certain barriers to entry. And, obviously, you know, if you look at our operation, you know, we have ten offices in Europe with people on the ground, and I still think, culturally, operating in France and Germany, you need very, very good teams in each of the countries. Clearly, there’s a nuance, you know, still on the legal side in each of those countries, and having, you know, a great familiarity around that is important. And so, you know, Europe, I think, still has some challenges for non European players for them coming here and building the infrastructure to capture that opportunity. On the flip side of that is, you know, what we forget is Europe is a huge economic block, and, you know, we’ve only had a single currency for twenty five years, and we’re still in the very early stages of, in my mind, of m and a consolidation, particularly in the mid market sector. If you look at mid sized companies in the United States, they’re one billion, two billion, three billion turnover, and mid sized companies inside of Europe are still, you know, two hundred to, you know, five hundred million turnover. And so that’s why private equity thinks there’s a lot of growth and a lot of opportunity because the market is just much less mature than the US market, you know, which has been going for thirty or forty years. Yeah. Can we talk a bit a little bit about regulation? Because I in some ways, my view of this is that regulation almost created your sector in, like, bank regulation. Basel two, three, whatever, sort of made banks traditional banks’ appetite for lending to businesses or lending to buyouts, you know, reduced it. And now you still we we we we keep hearing, you know, worries that somehow this nonbank financial intermediaries like yourself are you know, need more regulation or need and there was there’s actually a report in the Financial Times just this morning saying that the European Union’s thinking about, you know, that whether they should have a big study into nonbank financial institutions. And then we’ve got what’s happening on in the US, which seems to be in a deregulatory phase, and we’ll talk about other aspects of what’s going on in the US in a minute. But they’re in a deregulatory phase. How do you view regulation within the company? Is it something that you worry a lot about, or do you just sort of say it it’s what it is. We’ll just comply with whatever regulation comes along? Yeah. Listen. I think in one sense, we are, you know, quite regulated. If you look at the you know, most of the funds are set up in Luxembourg or Ireland, and if you look at the regulation they’re working with, the CSSF or the Irish Central Bank, you know, they have a very, very tight hand on looking at what’s going on in these asset managers, and there’s been lots of scrutiny around valuations and other bits and pieces, you know, inside of that process. So rarely talked about by the Financial Times or others in that space, but, you know, they you know, certainly, we have a significant operation in in Luxembourg, and we’re in constant interaction with the CSSF around how they’re looking at private managers and in across all the different asset classes. I think if you look at it from as you touched on, the banking industry, you know, I kind of, I suppose, grew up in the, you know, the growth of the capital markets industry, which kind of took a lot of things away from insurance companies and pension plans who used to lend money in the seventies to people like that. And then we, you know, turned it into a capital markets business, and regulation probably changed the most dramatically because of the trading businesses. And, yes, single name concentration from a a capital charge point of view had an impact, But fundamentally, what’s really had the biggest impact of the growth of our industry in my mind is the lack of reliability of syndication and underwriting over the last five years inside of Europe, where private equity has turned around and said, listen, it’s much better to go to these managers. They’ve got quantums of capital. And if we underwrite the deal, our concentration risk is, you know, two, three, four percent in our funds, so it’s not highly concentrated. And we will have, you know, twenty probably forty, fifty, sixty investors in that fund. So the individual investor has a very tiny exposure in that space. And I think regulators have got to understand that that is a very attractive way of not having highly concentrated risk in the banking system You know, which is a levered vehicle, and having it in a non levered vehicle where you’ve got many, many institutions participating in that space. And you saw Germany change its rules when we started, you know, a bank had to underwrite and we could buy it one day afterwards from a bank. Today, we can go in and lend directly. They’ve changed rules in Italy to make us be able to be direct lenders. So the countries have actually facilitated the growth of the industry as well in that space. So regulation, I’m sure, will continue to keep a close eye on the industry, but I don’t think it’s gonna hold the industry growth back. I think it’s gonna be so far, you know, it’s been sensible, and I think it will continue to be sensible. Right. Good. Well, let’s talk a bit about the the the most recent events. Obviously, even after we’ve done the bulk of the work on this report, certain macroeconomic instability started be emanating from the US. Have you what what did you do when when tariffs were were were looming for many of your portfolio companies? Or maybe they weren’t really relevant to your portfolio companies, but give us a sense as to that’s the sort of shock that could, you know, really disrupt a company, I suppose. So how what what did you do, and what did you find? Yeah. So we, you know, effectively, when COVID hit, we did a very in-depth analysis, you know, on a traffic light system around, you know, debt servicing, corporate viability, etcetera. And we did a very similar report as soon as the announcements of Liberation Day and what the impact was going to be. And the, I suppose, positive piece that came out of that was ninety percent of the companies, when we reviewed them, we saw no impact from tariffs. They had no exposure to exports and, you know, minimal impact on supply chains. I think if you look at the the other ten percent, it was more in the supply chain area where we felt that there could be some form of disruption in that. But it was minimal, and I think, you know, fortunately, some of the rhetoric has softened over the last few weeks coming out of the US. But I think the kind of possibly unintended consequence of Trump’s tariffs is it’s galvanized the Europeans around some stimulus programs inside of Europe, which we think over the next, you know, three to five years will be positive. So it’s not just the defense industry, there’s infrastructure programs. You saw last week EU coming out talking about, you know, broader stimulus programs to encourage growth inside of Europe. And, you know, like, dare I say, you know, Europe tends to be most proactive during crisis, and we saw that in the currency crisis with the ECB and and the powers it was given. And Trump may have been a bit of a wake up call for Europe around, you know, moving into a more positive stimulus growth mode rather than the austerity mode that we’ve lived with for the last ten years. So at the moment, you know, these companies are really focused on the domestic markets. They’re servicing domestic businesses and have, you know, next to no impact from the tariffs. But, you know, we watch every day to see what new announcements may come out of the US because mister Trump is, you know, fairly unpredictable from that perspective. Yeah. So it’s really more like the macroeconomics could affect you if the whole world goes into recession as a result of this. It’s hard to avoid it, but that’s I hadn’t really thought of the European Union actually coming in and maybe acting to stim to to provide some stimulus if the if if the macro economy does go into recession, but that sounds like the main risk now. Yeah. I I you know, I think we you know, there is a genuine, I think, acknowledgement inside of Europe that, you know, this is an opportunity because no longer can they rely purely on the US. And I think that will have positive effects for business. But, you know, as we all know, you know, if the US economy was to go into a significant recession, it will have a global impact. But at the moment, we don’t, you know, we don’t foresee that being a significant recession. We see it as a slowing down in the US economy unless, you know, the tariffs are really, really permanent. Yeah. Now I wanna move on to the an issue in an adjacent market, the private equity market, which is very adjacent to you insofar as they’re often the originators of deals. And, they the big issue in town there is the lack of distributions, the fact that the the the people are having to hold on to companies for longer. There is less deal flow happening in terms of the the sort of exits. But that seems as, like, a quite an actually, an opportunity as for the private debt side. And this is going into the into some of the new business lines and the like, which I think that you mentioned earlier as to possible ways in which the world has changed in the last four years is is is more focused on some other ways where leverage being can be created maybe for liquidity purposes or for growth of GP. So give us a sense about what’s going been going on in the last four years in the sort of on the fringes of your of your core business, if you like, not lending necessarily to transactions, but lending to funds or GPs or people like that. Yeah. So I suppose, you know, last year, we had two big announcements. You know, one was a partnership with Adia around our GP Solutions Fund and NAV lending business. And I think, you know, we see that as a interesting diversifier for LPs away from the core direct lending portfolio. And so the GP Solutions is really providing capital into the, you know, private equity firms who are using that capital primarily either for the growth of their business and building out teams and and different strategies inside the firm, or providing capital into their new strategies where they’re putting in a large equity check, but they’re also borrowing a certain amount of money to enhance the amount of capital that they’re putting into the fund. And we just recently closed a very large deal with one of the largest GPs in the alternative space in in that way. And I think, you know, what this really is is is, if I can say, a kind of two point o of GP stakes. So Dial, Peters Hill, Blackstone built out the business where private equity firms would sell a ten, twenty percent stake in their business to create capital inside the business to grow in that space. But, obviously, if you’re a fast growing organization, that’s a very expensive exercise when you think about the appreciation that happens in the equity. So the more mature firms are looking really to put in financing where they will put, you know, collateral in both from a revenue and income that they have off the historic funds, as well as the actual commitment that goes into the new funds. And likewise, if you look at the what we call our nav core fund, which is lending directly into the funds, This is really being used for additional add ons post investment period, and where they can bring in, you know, new businesses to enhance the value because, as you say, it’s taking longer to sell the business. Or, you know, if you think the investment period is, you know, four years, it’s easy to buy a company in year one and have it quite mature in five years’ time, but the company you buy in year four, once the investment period comes to a close, you still need growth capital to really make that business mature and develop onto the next level. And I think, you know, these are new strategies probably to a lot of investors, but if you look at the banks, they’ve been doing that for a long period of time, but they were doing it with just the Premier League players in the private equity world. Right. And this is the sharing it out in a broader basis in that space. And I think, you know, likewise, we’ve done big partnership with Santander on working capital where we’re doing, you know, strategic inventory for some of the large multinationals. And I think this is just an ongoing transition of highly attractive businesses in the banking world where they’re coming out into private markets for managers like ourselves and giving investors a much broader opportunity. And that’s why I go back to the same thing. You know, the market is not saturated from a capital point of view. There’s more products coming out. There’s more opportunities for investors to diversify their portfolio, and that will continue, particularly inside of Europe over the next decade, because we’re just so far less mature than the US market, which has been doing this for thirty odd years. Yeah. Yeah. And that’s an interesting issue, isn’t it? Certainly on the NAV loans, I think that they when they’re used to sort of add on and and invest more in the portfolio companies, that’s that’s one thing. There’s been a few disputes about whether you should have those loans to generate liquidity in these sorts of periods, you know, where the GP is not really managing to ship much back to the the LPs. But on the other hand, the firms are doing really well. So, you know, they’ve they’ve got plenty of NAV there. Presumably, in some cases, the loans are used to in enhanced distributions, aren’t they? In a way, it’s a a sort of substitute for secondaries in some ways. Yeah. Yeah. I I I would say, Tim, you know, most LPs if I talk to the managing partners of the private equity firms, their LPs are saying to them, listen. I don’t want you to go and borrow money at Right. You know, eight, nine percent to give me back my own money. You know, if you’re if you’re going to use money to go and buy a business, and you think that business is going to increase the probability of being able to sell the platform that you’ve been building, then we’re supportive of you using it. So I would say in the vast vast majority, you know, eighty plus percent, it is really money being used to grow the portfolio to hopefully lead to an exit and get the capital moving faster back to the LPs. In a small percentage, I think you have many you know, private equity firms who are really struggling And they’re trying to, you know, get a a lender to give them money to do a dividend recap effectively, you know, to their LPs. But I think those firms are gonna struggle probably in the capital raising in the future because I’m not sure it’s sending a strong signal to their LPs about where they are in the cycle. Right. Yeah. I can see that. And do you think that there’s any is there any just to go back briefly to the to the sort of what’s going on geopolitically. I mean, you do see some investors who are very worried now about having potential liquidity, you know, US endowments, US universities, for example, a big shock there. Clearly, direct lending and and, you know, is much more liquid. And so it is throwing off cash pretty pretty, you know, fast. But do you think that that will be a big shock to the system if if some of the large investors feel that they’re over allocated in general to alter or to private assets rather than public? Or or or on the flip side, you hear some investors who say they they they want to reduce their allocation to the US in general. I’m not really talking about, you know, debt or equity, but it’s just in general. Witness the Canadian pension schemes, perhaps the most dramatic example. But how do you see the balance of those things playing? You know, a sort of desire for a little bit more liquidity, but maybe a desire for less US assets. Yeah. I I I think, certainly, what has gone on over the last, you know, six months, you know, since mister Trump was elected has led to a rethinking about the weightings between US and Europe as the largest markets in that space. And I think Europe will benefit from that over the next three years, and we’re seeing that in our capital raising this year. I think if you look at liquidity, you know, I think that’s changing the asset allocation within alternatives. It may not necessarily mean that people go back to public. You know, so our working capital fund, which is, you know, monthly redemptions and it’s, you know, very short duration, etcetera, is seeing a lot of interest coming out of, you know, institutions who want to be in a low volatility product from a mark to market point of view, but they still have liquidity in that space, and they can redeem it on a monthly basis, etcetera. I think you’re also seeing people move away from you know, clearly, there’s a shift from private equity allocations into private credit because of the cash flow you’re getting, you know, we’re getting yearly significant amounts of money being paid back to you, you know, somewhere between, you know, seven and probably ten percent type returns coming back on a yearly basis. And, therefore, that makes it much easier to manage any liabilities you’ve got on the other side. And so probably a partial reduction in private equity, possibly possible reduction in, you know, infrastructure equity and other areas of the market, real estate. So I think credit will continue still to be a beneficiary in that space, but I think certain other parts of the alternative space, particularly the equity elements of the alternative space, may see a shifting just because, you know, they want more cash flow coming on a yearly basis into those schemes. Yeah. Just feels like with that amount of uncertainty, liquidity premium goes up a bit, doesn’t it? So the most illiquid assets like private equity can suffer in those periods. But, now we’re nearly out of time. So I just wanted to get you to gaze into the crystal ball and tell us what you think is gonna what’s exciting over the next few years? Can you see big developments within your business or within the European market in general? And if we do this again in four years’ time, what will what do you think we’ll be discussing? I just think, you know, if you go back I I think the most exciting part about the industry is just the broadening of the opportunity set that’s coming out of the industry. I mean, you know, we set up a partnership late last year with Santander where they’re working with us in providing access to large scale multinationals, and we’re working and we are providing the infrastructure to do financing on critical inventory, and that’s an incredibly attractive asset class, and we’re gonna give LPs access to both investment grade and noninvestment grade product at very attractive returns. So that’s, I suppose, what Mark Rowan has been calling, you know, private investment grade In that space. And, you know, what we talked about on NAV, you know, other products that are coming out, SRT business, you know, which is a regulatory capital relief for banks business is growing, you know, rapidly, etcetera. So from investors, you can now create, you know, multi straps where you can be investing across a whole range of different funds or, you know, products, which gives you much greater diversification and locks in very attractive returns versus public markets. But I think what we all forget, and, you know, Pemberton is ten years old this year, you know, if we look at it, you know, we’ve we’ve had a great growth period, but we still think we’re at the very early stages of what the growth is gonna be inside of Europe. And I think bank consolidation will happen in Europe, which will continue to force assets off bank balance sheets, not just for regulation, but actually for consolidation. And so Europe will continue, I think, to be a very, very attractive growth market and and much more, I think, dynamic growth market than possibly the US, which is pretty mature and saturated today. Yep. Well, all I can say is thank you for collaborating with us because I this is a difficult area for academics to actually get information on, and I hope the report is useful to people just to see, like, the the facts of what’s going on and how the terms are changing and the like. So I hope it will be of value to people, and I I’m sure this is an area which is gonna attract more academic interest in the future, which I certainly hope to to continue looking at it. But thank you, Simon. I think at this stage, I will hand back to Gunnar and to deal with the rest of this webinar. Thanks, Gunnar. Thank you very much, Tim. There are a few questions that have come in, so I’m just going to go through some of those. I think we already talked about the longer hold periods for PE firms, so I’m not going to cover that again. There’s a question on the structure and dynamics of the European direct lending market between sort of the lower mid market, the core mid market, the upper mid market, large caps and the emergence of club deals. Maybe you can share your perspective on that, Simon. Yeah. I listen. I think it’s still, you know, quite different to the the United States. I think if you look at the, you know there’s not really a difference in between, I’d say, mid market and upper mid market, you know, today as you do in the United States. You know, I think you the better line of the sand is probably transactions of, you know, five, six hundred million are getting close to being in the syndicated type market, and you’re starting to see the kind of six hundred to a billion with two or three managers coming in to do them because of scale in that process. The multi billion manager, you know, deals is really still being looked at by the very, very large US managers who are putting very large clubs together to do those transactions. Once you come below five hundred million, it’s still very much a single manager, you know, market, and I think it will stay that way for a reasonable period of time. You can never say when, never. It will change, but I think at the moment, the speed of execution means that you can get stronger documentation because you can work with one manager to get the deal done. And, you know, our sweet spot is probably, you know, a hundred million to four hundred million where we think the best value is in the market, both from a yield point of view and a documentation point of view. Great. Thank you. Another question on where do you see the most interesting opportunities in the developing private investment grade space? I think it’s an interesting space. So if you look at the United States, you you you know, securitization was a, you know, product that developed very early on in the US, and it coincided with the movement of a lot of assets out of the banking system in the late ninety or mid to late nineties in that space. So whether that was student loans, auto cards, credits, real assets, etcetera. In Europe, that didn’t really happen. Securitization happened on credit cards, it happened on mortgages, but fundamentally, if you look at the real assets across Europe, the banks were massive consumers of those assets, and we’re very, very happy to carry them on their balance sheet. So independent originators didn’t come to play. I think that’s now changing, and I think the banks are looking to move those assets as they have on corporate lending. And I think that’s gonna be a great growth area inside of Europe, but to do it, you have to build partnerships with some of the leading European banks who have the origination capability, which is exactly why we did the partnership with Santander on our inventory finance business. But I think it’ll broaden substantially into, you know, other leasing and other real assets type growth. And I think that will be a very attractive area for LPs. But it’s going to be a different business model to the US and a very European business model versus how the US do it. Okay. Great. And then another question. How do you view the ongoing democratization of private credit? And what impact do you anticipate this trend will have on the expected returns of the asset class? The returns in Europe have still continued to be one hundred plus basis points wider than the United States in that space. And so, you know, I think that still comes down to a very limited number of players in Europe with the footprint and scale of origination to, you know, cover the private equity firms in what they’re doing. Clearly, convergence will happen over time, but I think, ultimately, the demand, as I said earlier on, for financing is still, in my mind, greater than the, you know, supply of capital. You know, we go through ebbs and flows, so q q one private equity was quiet, but it’s picked up dramatically in the last two months. And so, you know, during those period of times, you’ll get spread compression, but then as activity levels pick up or disruptions happen in the market, spreads widen again. So to me, it will still be a significantly more attractive asset class than public markets, and we’ll continue to have a premium because of that supplydemand imbalance. Okay. Thank you. And then the last question. When looking at the unfortunate situation that a company is not able to meet its interest payments, what is the main difference between direct lending, the broader syndicated loan market, and high yield debt? I think it’s the ability to really work with the management team to understand the problem and then to work out a solution to go forward. You know, having come out of the public markets myself, you know, it’s very, very difficult when you have different investor groups holding debt in the syndication. So CLOs, a default downgraded to triple c, I have to sell. You know, it’s a necessity to keep the ratings in the CLOs. You’ve got mutual fund managers in there. You’ve then got, you know, pension funds, insurance companies, and each group has a different view on time periods and risk appetite in that space. So if you are the management team of the company sitting down and trying to pull together a sensible solution to move things forward on a timely basis is incredibly difficult. And then you get distressed funds who get involved who actually may not want a solution. They may actually just wanna get a debt to equity swap done so that they can try to make outsized returns out of the equity. So the management team is fighting all those groups to try to put something together. And I think the benefit in private credit is we can sit down with management. We can work out very quickly, you know, what the real issue is, and then we can make a decision in what’s the best interest for our LPs because we don’t have diverse groups trying to fight because they have a different interest to us. Great. Excellent. I think with that, we will conclude today’s webinar. We had one question about getting the full report. So I’m actually posting into the chat the link to the full report that you can download from our website. Thank you very much, Tim, for joining us Thank you, Simon, and many thanks to our clients for joining from, as I said earlier, all over the globe. Thank you. Thanks, everyone. Okay.