European Private Credit Fund — Senior Secured SME Lending

Investment Overview

This direct lending fund provides senior secured loans to established small and medium-sized enterprises (SMEs) across Western Europe — primarily the UK, Germany, France, the Netherlands, and Spain. The fund targets a blended portfolio return of 9–12% per annum, derived from interest income on the loan portfolio, with quarterly distributions to investors.

Private credit — direct lending to companies outside the traditional bank lending market — has become one of the most significant asset classes in institutional investment over the past decade, growing from a niche strategy to a mainstream allocation for pension funds, insurance companies, and family offices. This fund provides access to this asset class with a EUR 100,000 minimum investment.

What Is Private Credit?

Private credit (also called direct lending or private debt) involves non-bank lenders providing loans directly to companies, bypassing the traditional bank lending and public bond market channels. The private credit market has grown rapidly since the 2008 financial crisis, as regulatory changes (particularly Basel III and subsequent capital requirements) caused banks to reduce their SME and mid-market lending activity, creating a financing gap that private credit funds stepped in to fill.

Private credit loans typically carry several structural advantages over public market fixed income:

Illiquidity premium: Because private credit loans are not publicly traded, lenders demand a higher yield to compensate for the inability to sell the loan on a liquid exchange. This illiquidity premium has historically been 3–5% per annum above equivalent-rated public market credit, representing the primary source of excess return for private credit investors.

Senior secured position: Direct lending funds typically lend on a senior secured basis — they hold first-ranking security over the borrower's assets (property, equipment, receivables, shares of subsidiary companies). In the event of borrower default, senior secured lenders have priority over all other creditors in recovering their capital from the liquidation or sale of the security.

Floating rate structure: Many private credit loans carry floating interest rates, linked to EURIBOR or SONIA plus a margin. This means income payments increase as interest rates rise — a direct inflation-protection feature that fixed-rate bonds do not provide.

Covenant protection: Private credit loans include detailed covenants — financial maintenance covenants (leverage ratios, interest coverage ratios) and structural covenants (restrictions on asset sales, additional debt, dividends). These covenants allow the lender to identify deteriorating credit quality early and take protective action before a default occurs.

Target Borrower Profile

The fund lends to established European SMEs with the following general characteristics:

• Revenue of EUR 5–50 million per annum
• Minimum three years of operating history with positive EBITDA
• Strong market position in a defensible industry segment
• Loan size of EUR 1–5 million per borrower
• Loan purpose: working capital expansion, equipment financing, acquisition financing, owner buyouts

The fund manager applies a rigorous credit assessment to each prospective borrower, including financial analysis of three years of audited accounts, assessment of management quality and track record, industry and competitive position analysis, and security valuation. Approximately 15–20% of assessed deals are approved for lending.

Portfolio Construction

The fund maintains a portfolio of at least 50 loans at full deployment, with no single borrower representing more than 3% of the fund's net asset value. Geographic diversification targets approximately 30–35% UK, 25–30% Germany/DACH region, 20–25% France/Benelux, and 10–15% Spain/Southern Europe.

Industry diversification is maintained with sector limits to prevent overconcentration — no single sector (e.g., retail, construction, hospitality) exceeds 20% of the portfolio. Sectors with elevated cyclical risk (airlines, commodities, commercial real estate development) are excluded entirely.

Quarterly Income

The fund distributes income quarterly, reflecting the interest payments received from borrowers across the loan portfolio. The target quarterly distribution is approximately 2.25–3.0% (equivalent to 9–12% annualised), net of fund operating costs and the fund manager's fee. Income distributions will vary with the portfolio's actual default and recovery experience.

The Private Credit Market in 2026

The private credit market has benefited from the elevated interest rate environment of 2022–2025. As base rates rose significantly — with EURIBOR moving from negative rates in 2021 to above 3.5% in 2023–2024 — floating rate private credit loans saw their all-in yields rise sharply. While base rates have begun to moderate from their peaks, all-in private credit yields remain materially above their 2010–2021 lows, making this an attractive entry point for investors who missed the peak rate environment but still wish to capture the illiquidity premium over public markets.

Risk Factors

Credit and default risk: Some borrowers in the portfolio will default on their loans. The fund manager's target is to keep defaults to below 2% of the portfolio per annum, but this is not guaranteed. In an economic recession, default rates in SME credit portfolios can rise materially. Senior secured positioning and active covenant monitoring are the primary risk mitigants.

Recovery risk: Even when a loan is secured, the recovery process following a default can be lengthy and the recovered amount may be less than the outstanding loan balance, particularly if security values have declined.

Illiquidity: This is a four-year closed-end fund. Investors cannot redeem capital during the fund life. Individual loans in the portfolio are also illiquid — there is no public market for the fund's loan assets.

Currency risk: The fund is EUR-denominated. UK Sterling-denominated loans within the portfolio introduce GBP/EUR currency risk, which the fund manager manages with hedging instruments.

Concentration in SME credit: Economic recessions disproportionately affect SMEs. A European recession during the fund life would likely cause above-average defaults in the SME segment.

How to Enquire

Contact our investment team to receive the full fund prospectus, credit policy and underwriting criteria, portfolio overview, fund manager track record (including historical default and recovery data), and financial projections. This fund is available to sophisticated and professional investors. Minimum investment EUR 100,000.

Important: Target return of 9–12% p.a. is based on portfolio yield assumptions and projected default rates. Actual returns will depend on the credit performance of the loan portfolio. Capital is at risk — SME lending involves real credit risk including the possibility of borrower defaults and capital loss. This is an illiquid, four-year investment. Independent financial advice should be sought before investing.