Why long-term local platforms, disciplined underwriting and alignment of interests are defining the next chapter in European private credit

Adam Baghdadi, Managing Director, Lending Solutions

Long-Term Platforms as a Structural Advantage

I am often asked what most clearly differentiates our opportunistic credit strategy from others active in Europe today. The answer lies in our local platform model. We own these platforms at the General Partner level and therefore can hold them indefinitely. This allows us to build long-term institutional capability within markets, rather than operating on the basis of temporary fund ownership. Over time this translates into sustained local presence, trusted relationships, proprietary servicing data and origination capabilities that few others can equal.

“These are not bolt-on partners but fully integrated operating platforms, designed to give us direct connectivity into markets and a structural sourcing advantage.”

Our ownership of businesses such as Maslow Capital (UK), Norfin (Portugal), Interboden (Germany), iQera (France) and Europa Investimenti (Italy) illustrates the depth of this approach.

At present, we see some of the most attractive opportunities in German distressed credit and UK student accommodation. In Germany, the structural features of the insolvency process create compelling entry points. Processes tend to resolve quickly and remain accessible mainly to local participants, which deters many international buyers. Short-term government loans are often made available to support employment, but these only serve to delay rather than resolve underlying distress. Well-capitalised bidders are therefore able to step into situations at significant discounts, acquiring high-quality assets or loan portfolios where local incumbents may not have the balance sheet strength to compete. Recent residential, mixed use and ‘community’ retail transactions demonstrate the depth of these opportunities and the value of being present on the ground with the right capital base.

In the UK, purpose-built student accommodation remains one of the most attractive sectors in European real estate. The underlying fundamentals are strong, with average occupancy levels of 92 percent and rental growth of around seven percent in 2024. The sector has also shown resilience through the global financial crisis, eurozone crisis, Brexit and the pandemic, highlighting its defensive characteristics. Through Maslow we have established ourselves as one of the largest senior secured development lenders in this space, financing more than 6,000 ‘beds’ in excess of £1 billion lending. We are now at an interesting inflection point. The leading developers continue to bring forward high-quality projects, but many have stretched their equity in order to secure sites and progress planning. This creates opportunities to provide financing with strong protection while still allowing us to benefit when projects perform well. Our attachment points are typically 55 percent loan-to-value to 65 percent, offering resilience and the potential for accelerated returns when asset performance is strong.

Alignment, Discipline, and Sourcing Edge

A defining characteristic of our strategy has always been alignment of interest. Before the launch of our discretionary commingled fund programmes, we executed more than €6 billion of credit transactions directly from our corporate balance sheet, often in partnership with other managers. Our established record underscores the conviction we have in the strategy and the discipline with which we have pursued it. Today, with the discretionary programme in place, we continue to make meaningful manager commitments from our balance sheet to every fund. This ensures that our interests are fully aligned with those of our investors and that eligible deals are directed into the funds on an equal basis. Investors increasingly demand this form of partnership, and we see it as central to maintaining long-term trust.

Sourcing is another area where our model is deliberately differentiated. Around 80 percent of our transactions originate off market through our 24 servicing platforms. These platforms give us privileged access to data and deal flow, which is consistently where we find the greatest competitive advantage. To ensure this edge remains sustainable, we have expanded our operational footprint significantly in recent years. We have broadened our presence in France, Germany and Spain, doubled our employee base to more than 4,000 and increased total servicing assets under management to €112 billion. This scale allows us to approach new opportunities with greater depth and efficiency. A clear example of our approach can be seen through Mars Capital in Dublin. We had been servicing a portfolio of mortgage-backed loans, which gave us detailed insight into its performance and underlying characteristics. This allowed us to move decisively when the opportunity arose to acquire the portfolio directly from the seller in a bilateral transaction. Because we already had operational oversight, the migration risk was minimal, the loans were secured against hard real estate assets providing strong protection, and the acquisition was completed at a discount without competition.

Resilience Through Cycles and Value Creation

Interest rate movements are often seen as a key driver of opportunity, but our experience has been that distress emerge in different ways depending on the cycle. In our second credit opportunities vintage, higher rates created pronounced restructuring situations as borrowers struggled to service interest. More recently we have observed distress linked to legacy capital structures, particularly the overuse of bank leverage in German residential markets. By contrast, lower and more stable rates tend to increase bank readiness to sell mortgage portfolios, generating opportunities through our servicing platforms in Portugal, Ireland, Spain and France. Our established track record spans periods of both elevated and negative interest rates, reflecting the adaptability and resilience of our business.

Furthermore, we maintain a conservative approach to underwriting. We rarely assume refinancing will be available as an exit, preferring to base our cases on collateral sales. We also run stressed duration scenarios, often assuming delays of 12 to 24 months, and apply valuation shocks using independent downside forecasts comparable to those seen during the global financial crisis.

“Even in these stressed scenarios, our deals still generate good returns, underscoring the resilience of the portfolio.”

In secured collateral strategies, we seek to both buy at a discount and create value through asset transformation and operational improvement.

A recent hospitality credit transaction in Majorca illustrates this approach. We acquired an under-capitalised hotel asset and repositioned it from two to five stars under the leadership of our hospitality business, Details. By combining targeted capital expenditure with operational transformation, we were able to create a prime asset at a significant discount to replacement cost. This repositioning strategy demonstrates how we aim to enhance value and target attractive multiples on invested capital through disciplined asset transformation.

Consistency of returns is another hallmark of our strategy. We maintain low dispersion of outcomes by adhering strictly to areas where we have a structural advantage, namely off-market transactions sourced through our platforms. Each transaction is subject to a composite risk scoring process that benchmarks expected risk and reward across countries and strategies. This ensures comparability, discipline and protection of the low loss rate track record we have built over two decades.

Finally, the recycling of capital has been an important driver of outperformance in our credit opportunities strategy. By realising investments early and redeploying proceeds within the investment period, we are able to compound returns and enhance overall multiples. In the early years this recycling activity tends to be most active, before giving way to distributions as the investment period concludes. This approach ensures that investors benefit both from incremental value creation during the early phase and from meaningful cash returns thereafter.

Taken together, these elements explain why our opportunistic credit strategy has generated consistently strong returns through multiple cycles. Local platforms provide proprietary access and insight, balance sheet commitment ensures alignment, disciplined underwriting protects downside, and recycling drives incremental value. It is this combination of structural advantage and disciplined execution that gives me confidence in our ability to continue delivering differentiated outcomes for our investors.