The Expansion of Fidelity International into European Corporate Lending

Fidelity International, a leading wealth manager overseeing more than $700 billion, is making a strategic move into European corporate lending. With the aim of capitalizing on market gaps following the financial crisis and recent banking turmoil, Fidelity is launching a closed-end fund that will provide guaranteed loans to medium-sized European companies. This expansion comes on the heels of Fidelity’s purchase of BlackRock, the world’s largest asset manager.

The Fund’s Focus and Objectives

The newly created fund, managed by Fidelity’s private credit team, will have a focus on senior debt and target medium-sized European companies with annual earnings ranging from €5 million to €30 million. By specifically catering to this segment, Fidelity aims to address the financing needs of businesses that often struggle to secure loans from traditional banks. The fund’s objectives include:

• Making its first investment in the coming weeks to establish its presence in the market
• Providing an alternative funding source for companies that experienced reduced lending options in the aftermath of the 2008 financial crisis
• Contributing to the growth of the private credit industry, which has rapidly expanded to a $1.4 trillion sector

The Rise of Private Credit and Competition from Asset Managers

Fidelity’s entry into European corporate lending reflects a broader trend of asset managers turning to private credit as an investment opportunity. Nuveen and PGIM, two prominent US-based asset managers, have also made significant buyouts in the private credit space in recent months. This shift is attributable to banks withdrawing from certain types of financing post-2008 due to concerns over riskier lending practices and tighter capital requirements.

The collapse of Silicon Valley Bank in the United States and the acquisition of Credit Suisse by UBS in Europe further contributed to the challenges faced by traditional banks. Rather than making lending easier for banks, these events made it increasingly difficult for them to provide financing, creating an opportunity for wealth managers like Fidelity to step in.

The Attractiveness of European Private Credit

Fidelity’s global head of private asset solutions, Nick Haaijman, sees the expansion into European private credit as a growing market with great potential for investors. Haaijman explains, “Investors recognize that this is an asset class in Europe where you can see a steady stream of income.” The new fund managed by Fidelity is set to be the first of its kind in the direct lending industry in Europe, offering returns that are currently more attractive compared to recent years.

Bridging the Gap in Midsize Business Financing

While the direct lending industry has experienced significant growth over the past decade, there remains a gap in financing options for midsize businesses. Fidelity acknowledges this gap, indicating that despite the growing number of funds in the direct loan market, there is a lack of solutions specifically tailored to the midsize business sector.

Data provider Prequin reveals that approximately $125.9 billion was raised by direct lending funds in 2021, with $75.9 billion raised in the first three quarters of 2022. In Europe, $45 billion was raised in 2021, and $25.7 billion was raised in the first three quarters of 2022. These figures underscore the significant capital inflow into the direct lending industry.

Expanding Opportunities in European Corporate Lending

The entrance of Fidelity International into the European corporate lending landscape heralds new opportunities for medium-sized businesses to secure financing and pursue growth. As the private credit industry continues to flourish, Fidelity’s strategic move comes at an advantageous time, positioning the wealth manager to capture market share and generate steady income for investors.

Challenges for Traditional Banks

Following the 2008 financial crisis, traditional banks faced increased scrutiny and regulatory requirements surrounding lending practices, resulting in a withdrawal from certain types of financing. The collapse of Silicon Valley Bank and the acquisition of Credit Suisse by UBS exacerbated the challenges faced by banks, further limiting their ability to provide loans. This void in the market created an opportunity for alternative players like Fidelity to step in and bridge the financing gap.

The Shift towards Private Credit

The expansion into European corporate lending by Fidelity International is part of a broader trend of asset managers turning their focus towards private credit. Private credit has evolved into a $1.4 trillion industry, attracting investment from renowned asset managers such as Nuveen and PGIM. With increased demand for non-traditional financing options, private credit has emerged as an attractive investment avenue, offering potential returns and diversification benefits for investors.

The Value of European Private Credit

Fidelity’s decision to enter the European private credit market stems from the recognition of the untapped potential and steady income streams offered by this asset class. With a focus on senior debt and medium-sized European companies, Fidelity aims to provide a tailored solution for businesses that often struggle to secure loans from traditional banks. By diversifying portfolios and seeking alternative investment strategies, investors can better position themselves to achieve their financial goals.

Addressing the Financing Needs of Midsize Businesses

Despite the exponential growth of the direct lending industry, there is still a gap in financing options for midsize businesses. Fidelity’s entry into this sector seeks to address this gap by offering a dedicated fund that caters to the specific needs of medium-sized European companies. This approach ensures that businesses in this segment, with annual earnings between €5 million and €30 million, can access the necessary funds to fuel their growth and expansion plans.

The presence of Fidelity’s fund in the European direct lending market is likely to attract interest from companies seeking financing beyond what traditional banks can provide. Its focus on senior debt and the ability to offer guaranteed loans ensures that medium-sized European businesses have a viable alternative to secure funding.

Summary

Fidelity International, a prominent wealth manager, is expanding into European corporate lending with the launch of a closed-end fund. The aim is to provide guaranteed loans to medium-sized European companies with annual earnings between €5 million and €30 million. Fidelity’s entrance into this market comes as traditional banks face challenges due to increased regulatory requirements and limitations in providing loans. This strategic move capitalizes on the growing private credit industry, which has become a $1.4 trillion sector. By bridging the gap in midsize business financing, Fidelity aims to capture market share and offer investors attractive returns.

The expansion of Fidelity International into European corporate lending reflects a larger trend of asset managers turning to private credit as an investment opportunity. This shift stems from traditional banks’ withdrawal from certain types of financing following the financial crisis, combined with recent events such as the collapse of Silicon Valley Bank and the acquisition of Credit Suisse. The European private credit market presents a growing opportunity for investors seeking a steady stream of income and diversification.

The introduction of Fidelity’s fund addresses the financing needs of midsize European businesses, filling a gap in the market. While the direct lending industry has experienced significant growth, there has been a lack of tailored solutions for the midsize business sector. Fidelity’s focus on senior debt and medium-sized companies ensures that businesses in this segment have access to funding. As the demand for non-traditional financing options continues to rise, Fidelity’s entry into European corporate lending opens doors for medium-sized businesses to secure the funding necessary for their growth and expansion.

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