Private credit is rapidly transforming the financial landscape as high interest rates and regulatory changes create new opportunities for investors. Zach Lewy, CEO of Arrow Global, highlights this shift, noting that the rise in credit rates makes private credit more attractive than traditional equity assets, as investors are now being rewarded with higher returns for holding secure positions.

Lewy wrote in a blog post that there is now a notable trend of transitioning certain loans—like small business, construction, and specialty mortgages—from banks to private credit lenders, creating opportunities for specialized financial institutions to step in. This shift coincides with a political climate in Europe that is leaning toward populism and expansionary fiscal policies, prompting central banks to maintain elevated interest rates. Higher rates raise asset ownership costs, thus fueling demand for credit.

“When interest rates were zero or negative, if you had told investors they could earn 5.5% risk-free from government bonds, 90% of them would have taken it. Today, you can invest in credit at higher rates and still sit at the top of the security waterfall – that’s an enticing proposition for investors,” Lewy wrote. “I believe there has been a paradigm shift away from certain assets in real estate equity, particularly tertiary office stock, as well as private equity, toward private credit, where you're being compensated well for holding a senior secured position.”

As a relatively young industry, private credit continues to evolve, and debates about effective strategies are anticipated, similar to those in the stock market. The influx of capital into private credit is reshaping competition; however, the sector remains specialized. Areas like hospitality and real estate credit are experiencing heightened demand, particularly as remote work trends lead to an influx of people relocating to Southern Europe.

Real estate credit is seen as especially promising due to its complexity compared to corporate debt, attracting investors who seek favorable loan-to-value ratios. Yet, entering this space requires significant expertise and local knowledge, particularly in navigating diverse legal and regulatory frameworks across Europe.

While asset-based finance is prominent in the U.S., it faces challenges in Europe due to its varied regulations. Despite these complexities, localized lenders can capitalize on domestic asset finance opportunities. 

Founded in 2005 by Zach Lewy, Arrow Global aims to be Europe's leading private credit and real estate investment platform. The company offers sustainable value across various alternative asset classes, managing approximately €90 billion in third-party assets under management (AUM) through 22 top-tier asset management and servicing platforms, supported by key European regulatory licenses.