Strategic Alliances Drive Private Credit Expansion in Europe: A New Era of Collaboration

The European private credit market is undergoing a transformative phase, fueled by strategic partnerships between private equity (PE) firms and institutional banks. With the market valued at $530 billion in 2025 and projected to reach $940 billion by 2030, the sector's growth is being catalyzed by innovative financing structures and cross-industry collaborations. These alliances are not only addressing the void left by traditional banks but also unlocking new opportunities in sectors like defense, infrastructure, and digital transformation.

The Drivers of Growth

The expansion of private credit in Europe is being driven by three key factors. First, non-bank lenders are stepping into the breach as traditional banks face regulatory constraints and capital requirements that limit their ability to originate certain loans according to analysis. Second, macroeconomic conditions-including historically low interest rates and supportive policy frameworks-have attracted significant capital inflows into the region according to market data. Third, European investors are increasingly prioritizing sectors such as defense, digital infrastructure, and the energy transition, which require long-term, tailored financing solutions according to industry reports.

This dynamic environment has created fertile ground for strategic partnerships between PE firms and institutional banks. These collaborations are redefining the credit landscape by combining the agility of private equity with the scale and risk management expertise of banks.

Structuring the Future: Co-Origination and Risk-Sharing Models

One of the most prominent partnership models is co-origination, where banks and asset managers co-lend to the same borrower under identical terms. This "originate-and-share" approach allows banks to assess risk on a portfolio basis, enabling participation in lower-rated deals while maintaining an overall investment-grade profile according to market analysis. For asset managers, such arrangements provide access to a broader pool of high-quality borrowers, accelerating capital deployment.

A notable example is the synthetic securitisation agreement between the EIB Group and ABN AMRO, which unlocked €1.2 billion in new lending for Dutch businesses, including sustainable SMEs. This structure exemplifies how banks and institutional investors can collaborate to address funding gaps while aligning with ESG objectives.

Similarly, the defense sector has seen a surge in partnerships. BNP Paribas allocated €12 billion in defense financing in 2024, while Tikehau Capital and Weinberg Capital Partners launched dedicated aerospace and defense funds according to industry insights. These initiatives reflect the growing recognition of defense as a strategic investment area, driven by NATO members' commitments to increase defense spending to 5% of GDP by 2035 according to policy analysis.

Measurable Impacts on Market Growth

The impact of these collaborations is already evident in market metrics. European private credit issuance reached €30.5 billion year-to-date in Q3 2025, surpassing the same period in 2024. Dry powder-capital committed but not yet invested-remains robust at $1.3 trillion, enabling lenders to extend higher leverage at competitive terms according to market data.

Strategic alliances have also spurred M&A activity. Public-to-private (P2P) transactions in Europe surged by 65% in 2024 according to global reports, with large-cap sponsors like Blackstone and KKR leading the charge. The availability of hybrid financing structures, such as PIK (payment-in-kind) arrangements, has further enhanced flexibility for dealmakers according to industry analysis.

Moreover, the infrastructure sector is benefiting from these partnerships. Private capital is addressing a $15 trillion funding gap over the next 15 years, with data centers emerging as a key focus area. By 2029, private credit is expected to finance a significant portion of the $2.9 trillion in global data center investment according to market forecasts.

Challenges and Risks

Despite the optimism, challenges persist. Europe's fragmented regulatory landscape-marked by distinct legal frameworks across jurisdictions-poses hurdles for cross-border collaborations according to regulatory analysis. Additionally, the ECB has raised concerns about the risks of "hidden leverage" in private credit-banking partnerships, including concentration of risks and complex lending exposures according to financial stability reports.

The sector must also navigate macroeconomic uncertainties, such as the potential for interest rate hikes and geopolitical tensions. However, the resilience of sectors like industrials and healthcare, which have shown growth in both deal count and value according to market data, suggests that private credit's adaptability will continue to drive long-term gains.

The Road Ahead

Looking ahead, the European private credit market is poised for further expansion. The convergence of PE and banking capabilities is expected to accelerate, particularly in high-growth sectors like AI and defense. Regulatory developments, such as the UK's Pension Schemes Bill, may also unlock additional capital by allowing pension funds to invest in alternative assets according to legal analysis.

As the market matures, collaboration will remain central to its success. By leveraging the strengths of both banks and private equity firms, Europe's private credit sector is not only filling critical financing gaps but also redefining the future of capital allocation in the region.