Private credit, Europe and Italia are a far cry from the US
This is what fund managers in the sector think about the regulations and standards used to grant loans
Have the cockroaches evoked by Jamie Dimon, number one of the US bank Jp Morgan, also been spotted in Europe? Is there also something to worry about in private credit? For operators in the sector it would seem not. 'The alarm in private credit is a purely American matter,' explains Andrea Pescatori, CEO of Ver Capital. 'The cockroaches Dimon sees are mainly in the States. The European market, and the Italia market in particular, has structural and regulatory characteristics that make it much more solid and less exposed to sudden crises'.
The reasons for this diversity
Here, then, according to Pescatori, are some reasons for this diversity that would put us in the clear: 'In Europe, the system remains strongly bank-centric. Private credit acts in a complementary way to banks; many transactions are club deals carried out together with banking institutions, following their strict credit standards. In the US, by contrast, the corporate lending market has been in the hands of the capital markets, including private credit, for over 35 years'.
It should also be added, Ver Capital's CEO points out, that 'Europe has accepted and applied the Basel criteria, which impose stringent methodologies in the valuation of bank assets. In the US there has always been strong resistance to the application of Basel by the Fed and the big banks, leading to a less controlled and more liberalised market'. Finally, 'in the US, private markets have been open to retail for years. In Europe, the allocation is predominantly institutional, which eliminates redemption volatility. Although Eltifs exist for retail, they are a drop in the ocean compared to managed assets, with a still very limited spread'.
Products to be placed well
Private credit products must then be placed in a transparent manner. "For an effective placement it is essential to coordinate pre- and post-placement communication in the best possible way," says Daniele Colantonio, partner at Anthilia Capital Partners. "In many cases we are also involved with video webinars with some top clients who want to ask questions directly to the manager before subscribing. He adds: 'In addition to the type of underlying, the entire investment journey must also be clarified. What happens after an investor has subscribed, how many Navs he receives, when, what distributions are expected and in how many years the position is closed. And then the opportunities and risks from which the return is derived have to be explained'. The most critical element to be managed 'is the different time frequency with which clients receive information. Listed instruments generate an overdose of Nav mark-to-market that has nothing to do with private markets. Patience must prevail in these markets'.
