Executive Summary
Europe is often dismissed for its sluggish growth, political fragmentation, and regulatory inconsistency — a narrative that has reinforced its position as a secondary player in the global investment hierarchy.
But policy momentum is building, from the EU’s Readiness 2030 defence strategy to Mario Draghi’s competitiveness agenda, signalling a region actively courting capital to drive energy security, technological advancement, and market integration.
At its core, our view is simple:
Our thesis rests not on forecasting a probability of success for Europe, but on our belief that Europe needs capital now and for years to come — and that need for capital, met with structural complexity, creates opportunity.
Key Takeaways
- Europe is less competitive and more complex than the US, with capital markets equal to only 40% of GDP versus 80% in the US — but this gap is exactly what creates the opportunity
- Policy momentum is real: the EU’s €800bn Readiness 2030 defence initiative, Germany’s ~20%-of-GDP fiscal stimulus, and the Savings and Investment Union all point toward growing capital needs
- Structural features work in investors’ favour too — fewer liability management exercises, more stable credit fundamentals, and improving liquidity through the rise of portfolio trading
- Europe’s complexity, not defaults or volatility, is the primary driver of its persistent pricing premium versus the US — a premium that spans public, private, and structured credit
- Success will depend on managers with deep, long-established local presence able to navigate differing tax, legal, and regulatory regimes across jurisdictions
Less Competitive, More Complex
Europe remains a bank-led system, with capital markets thinner and less crowded than in the US. Private credit is three times smaller than its US equivalent, and the region has underinvested in growth sectors due to a lack of risk financing. Mario Draghi’s 2024 report identified three structural fault lines: the absence of a single securities regulator, a fragmented post-trade environment, and differing tax and insolvency regimes — where recovery rates for creditors can range from 5% in Greece to 75% in Luxembourg.
Changing Policy Winds
Europe’s financing needs are growing alongside its policy ambitions. The EU’s Readiness 2030 initiative mobilises roughly €800bn for defence and infrastructure, while Germany alone is pursuing fiscal stimulus equivalent to nearly 20% of GDP.
The proposed Savings and Investment Union aims to channel Europe’s €31tn stock of retail savings — more than double the US savings rate — into the real economy, while proposals to simplify EU securitisation rules could roughly double the investable market to €1.2tn by 2030.
Source: IMF
Structural Footholds
Europe carries structural advantages beyond policy. Liability management exercises remain far less common than in the US — only 38% of European high yield defaults involved distressed exchanges since 2022, versus 62% in the US — reflecting fewer creditors and stronger alignment of interests.
Corporate fundamentals are stable, with net leverage in the high yield market flat over the past decade, and liquidity has improved materially thanks to the growth of portfolio trading, which now happens every 15 minutes in Europe.
Source: Goldman Sachs
Complexity Demands a Premium
Europe’s inherent complexity — not default losses or volatility, both of which have historically been lower than in the US — is the most likely explanation for its persistent pricing premium across public, private, and structured credit.
European high yield has offered a ~45bp incremental spread pickup versus the US since 2010 once adjusted for credit quality, while European direct lending trades roughly 40–45bp wider than US equivalents. In securitised markets, Europe holds a distinct edge in Significant Risk Transfers, where European banks account for over 80% of global issuance.
Source: Bloomberg, PitchBook LCD
Conclusion
Momentum in Europe is shifting, with reforms targeting greater capital markets integration and structural inefficiencies. Europe is already an attractive proposition because of its unique complexity — and the policies aimed at driving long-term growth mean a substantial and sustained need for capital.
We believe the relative success of managers will come down to more than spotting opportunities as they arise — it will depend on having a long-established presence in European credit markets, with the local knowledge, relationships, and regulatory understanding needed to navigate opportunities across jurisdictions.