European upper middle market opportunities for insurers

Within European private credit, we believe debt provisioned to larger, well-capitalized companies, known as the upper middle market (UMM), is particularly attractive given the strength and stability of these corporate balance sheets. Increasingly, these borrowers are toggling between two types of financing: bank-arranged debt facilities (syndicated loans or broadly syndicated loans – BSL) and directly originated loans (direct lending). In developing a portfolio focused on European UMM companies, we combine the direct lending market, which offers the benefit of spread premium, and the syndicated market, which offers the benefits of consistent deployment and liquidity.

From our perspective, this is particularly well suited to investors — including UK and European insurers — who are looking for evergreen solutions which focus on larger, established European companies delivering high amounts of floating-rate income on a stable asset base. Investors can simultaneously benefit from the direct lending spread premium of undertaking credit risk to these companies while remaining fully deployed.

The changing landscape of private credit

Post-Global Financial Crisis, regulatory changes and capital requirements constrained banks’ lending capacities, creating a vacuum to be occupied by non-bank lenders. Historically, the corporate private credit market could be divided into two segments: the syndicated loan market for larger companies and the direct lending market for smaller firms. Despite different access points, both markets focus on senior secured floating rate debt. Their key distinction lies in the technical nature of lender participation:

• The syndicated market involves loans originated by banks and then shortly thereafter distributed to institutional investors. Given the broad market awareness and borrower size, syndicated loans thereafter maintain a strong secondary market and regular liquidity.
• The direct lending market features loans made directly by non-bank lenders to borrowers. These direct loans offer a spread premium to syndicated loans but with the consideration that minimal secondary market or liquidity exists, and lenders generally hold the loan until repayment or maturity.

As direct lending dry powder grew over time, a meaningful portion was deployed towards larger companies, and the distinctions between the syndicated and direct lending markets became increasingly artificial. The differences were primarily driven by fund constraints rather than credit risk (i.e., investor vehicles focusing on either syndicated or direct lending, but minimal flexibility between the two).

Today, European UMM borrowers consider debt solutions from both markets, and many may toggle between the two based on pricing/spread differentials at any given moment in time:

• In times of weak issuance in syndicated loan markets, spreads for new deals widen (as in 2022), and consequently, direct lending deal activity increases.
• When the BSL new issue market is strong and spreads are dropping (as in 2024), many UMM borrowers shift away from direct lending market in favour of syndicated markets.

In our view, senior secured floating rate loans to UMM European borrowers can offer high income from stable companies. UMM companies, those with €50 million or more in EBITDA, are generally regarded as stronger borrowers with more resilient cash flows. We believe the risk-return profile of European UMM companies is superior to lower middle market companies.

A consistent view of upper middle market opportunities

To ensure consistent deployment, investors will increasingly need to be flexible in utilizing both syndicated and direct lending loans within their portfolios, as larger borrowers will continue to move between these markets.

Despite the differences in capital access from the borrowers’ perspective, we believe that from a client perspective, the portfolio management and credit risk considerations for this exposure should be viewed uniformly as European UMM corporate, senior secured floating rate debt.

European upper middle market for insurers

For UK and European insurers, European UMM senior secured loans offer an attractive risk adjusted return profile and a strong return on capital under Solvency regime. From a portfolio construction perspective, UMM strategies typically combine exposure to broadly syndicated loans and directly originated transactions, with a majority allocated to private loans. This structure, together with enhanced yield, results in an attractive return on capital — i.e., spread/spread risk capital — compared with other credit alternatives. 

UMM lending also provides meaningful diversification to insurers’ core portfolios, which are typically anchored in fixed rate bonds. By introducing floating rate exposure with distinct return drivers, it helps rebalance interest rate sensitivity and enhances portfolio resilience across different rate environments. Relative to lower middle market lending, the strategy offers comparable yield potential with a more conservative risk profile and stronger covenant protections, supporting more resilient and efficient portfolio construction. 

Accessing UMM senior loans through an evergreen structure enables insurers to capture this attractive segment of the lending market while addressing a key constraint around deployment scalability and access to private markets, all within a cost effective fee framework.

Invesco’s experience and expertise in European upper middle market lending

Sourcing and diligence are critical value drivers in lending to European UMM companies.

• Sourcing. We believe the most important sourcing consideration relates to the scale of relationships with the largest deal sponsors in the market, as these are the entities which own firms in the upper middle market. As of November 2025, Invesco is one of the largest financiers of global private equity with more than €30 billion in loans outstanding to the largest sponsors in the market. Additionally, Invesco has decades-long relationships with some of the largest European banks who are playing an increasingly bigger role in the private credit market.
• Due diligence. Invesco leverages deep sector expertise to thoroughly evaluate potential investments, ensuring we understand the unique dynamics and risks of each industry. Our extensive familiarity with borrowers enhances our ability to assess creditworthiness, drawing on long-standing relationships and historical performance data. Additionally, Invesco’s robust credit research capabilities ensure meticulous analysis and informed decision-making.

Invesco’s UMM strategy aims for diversified exposure to large European corporate loans through both direct lending and BSL. This flexible structure has the potential for consistent deployment without capital calls, optimizing returns across market cycles. Direct lending offers an illiquidity premium of 100–300 bps, while syndicated loans provide scale and liquidity. By investing across both formats, our strategy aims to capture high income, regular liquidity intervals, and access to stable, well-capitalized companies.