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, warns that inflation and high interest rates, coupled with the rise of populist and expansionary fiscal policies, will pressure central banks to act as a force of restraint.
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.
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.
“We will likely see similar debates in private credit, such as whether to offer liquid credit or develop some sort of index,” Lewy wrote. “As private credit continues to evolve, it will further solidify its position as an essential asset class, with ongoing developments in standards, benchmarks, and best practices that reflect its growing maturity.”
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.