Beyond the headlines: Navigating today’s private credit landscape in Europe

Dislaimer in first frame: This marketing communication is for professional investors and qualified clients/sophisticated investors only.

Recent headlines have raised questions about private credit — particularly in the U.S. From high profile defaults and potential AI disruption in software, to liquidity and gating concerns in Business Development Companies (BDCs), it’s understandable that investors are asking: what’s really going on?

Rather than reacting to headlines, we believe it’s helpful to look through the noise and focus on what’s driving current conditions across the market.

Credit risk exists in every market — public and private. And we do not believe the issues we are seeing today are a systemic issue. Instead, the challenges are concentrated in specific parts of the market and are largely tied to legacy portfolios, not new lending opportunities.

Over the past decade, private credit experienced very strong asset growth, particularly through fundraising into a handful of scaled vehicles.  This tremendous growth created deployment pressure in parts of the market, particularly several of the larger US vehicles. 

As a result, many portfolios became heavily concentrated in U.S. software and technology businesses — in some cases 20 to 25 percent or more of portfolio exposure — attracted by growing revenues, recurring revenue models and low capital expenditure requirements.

The challenge is that many of those transactions were underwritten at high purchase multiples with elevated debt leverage on the company.

When interest rates began rising in 2022, the floating‑rate nature of these loans meant interest costs increased quickly. Cash flows tightened, and interest coverage weakened. By 2023, stress became more visible through increased use of payment‑in‑kind interest, or PIK, where interest is deferred and added to the loan balance rather than paid in cash.  This pressure became highlighted by the recent questions on how AI might disintermediate these businesses along with asset liability mismatch in redemptions of large vehicles which did not have sufficient liquid assets in their portfolios.

It’s important to stress that this does not describe the entire private credit market.

At Invesco, we did not invest in U.S. or European software direct lending transactions, and as a result, our investment team has not been impacted by the legacy challenges behind today’s headlines. This positions us to engage in opportunities that reflect today’s market conditions rather than past underwriting environments.

Importantly, this market reset is also creating opportunity. Many platforms are stepping back from new originations as they work through legacy portfolio issues. This comes at a time when there is mounting levels of expected M+A in the market in the medium term. 

Europe, in particular, appears attractive. We would estimate that less than 10 percent of the market’s opportunities are technology‑related---even amongst those, we might argue that much of the European technology businesses tend to be more specialised and less exposed to the broader platform and AI‑disruption risks seen elsewhere.

Taken together — planned M&A activity, market uncertainty, and reduced lender competition — this creates a constructive backdrop for lenders with available capital and disciplined underwriting. We believe this environment has the potential to support stronger asset quality, more conservative structures, and improved return profiles.

The key takeaway is simple: private credit is a broad and diverse asset class, and outcomes depend heavily on manager selection, portfolio construction, deal structure, and discipline. Looking beyond the headlines — and knowing what you own — matters more than ever.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

This marketing communication is exclusively for use by professional investors in Continental Europe as defined below, and Professional Clients in Dubai, Ireland, Isle of Man, Jersey, Guernsey and the UK and qualified clients/sophisticated investors in Israel.

It is not intended for and should not be distributed to the public.

For the distribution of this communication, Continental Europe is defined as Austria, Belgium, Denmark, Finland, France, Germany, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Spain, and Switzerland.

Data as at 31 March 2026, unless otherwise stated.

This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

Views and opinions are based on current market conditions and are subject to change.

Issued by

Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich, Switzerland.

Invesco Management S.A., President Building, 37A Avenue JF Kennedy, L-1855 Luxembourg, regulated by the Commission de Surveillance du Secteur Financier, Luxembourg.

Invesco Asset Management Limited, Index Tower Level 6 - Unit 616, P.O. Box 506599, Al Mustaqbal Street, DIFC, Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority.

This document may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this document should be considered investment advice or investment marketing as defined in the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 1995 (“Investment Advice Law”). Neither Invesco Ltd. nor its subsidiaries are licensed under the Investment Advice Law, nor does it carry the insurance as required of a licensee thereunder.

EMEA 5351094/2026