12 Jun 2025
Direct Lending Report 2024
A coming of age for the lower mid-market
Deal activity in the European private equity market recovered in 2024, particularly across the UK and Ireland, as the era of historically high interest rates came to an end.(1)
Although this led to heightened competitive pressures, including tighter margins, across the larger-cap sector, the lower mid-market remained relatively insulated.
Our position as a key lender in the segment, combined with our disciplined lending approach, meant that we continued to deploy at a lower average net leverage(2) than the market over the course of 2024. Our success is built on our specialist knowledge of the segment’s specific dynamics, as well as trusted relationships with sponsors, which we have developed over the last 15 years.
€1bn deployed in 2024
Geopolitical events were centre stage in 2024. Over 70 countries — and more than half of the world's population — participated in elections and conflicts in Ukraine and the Middle East persisted.
Market themes
Falling interest rates
The upward trend in EU and UK interest rates since 2022 reversed during the year as inflation moved lower.
Broadly syndicated loan market reopened
This led to intensified competition in larger-cap direct lending, which caused a reduction in spreads. This resulted in an increase in investment flow, primarily driven by bolt-ons and opportunistic re-pricings, as market terms increasingly shifted towards a borrower-friendly landscape.
European PE activity recovered
The number of transactions increased 5% year-on-year (yoy) to 1,400 - the first increase seen since 2021. The UK and Ireland led the recovery, recording a 23% yoy increase in deal activity.1
Our disciplined investment philosophy, concentrating on the lower mid-market provided insulation from increased competitive pressures in the upper mid-market and large-cap segments. We remained focussed on quality credits at attractive terms.
Loan volumes in Europe
There was a significant increase in loan volumes in the European mid-market in 2024 - 4894 deals up from 3554 in 2023. This was primarily driven by refinancings and bolt-on acquisitions as borrowers capitalised on favourable market conditions. 64%4 of the market deals in 2024 were attributed to refinancings and add-ons which aligns to our 2024 investment flow.
Competition shifted pricing dynamics
Pricing dynamics also shifted following intensified competition, largely driven by large amounts of private credit dry powder and lenders creeping back into the mid-market after the BSL market re-opened. Average margins on direct lending deals across the EU dropped ~150 basis points (bps) over the reference rate over the last 12-18 months.5
In our business, the average spread compression was 25-50bps off the highs of 2022/23, as the lower mid-market – particularly below €15m EBITDA where we typically invest in new borrowers – was largely insulated from these competitive tensions.
European direct lending average spread
Source: PitchBook | LCD - Data through Dec 31, 2024
Analysis based on transactions covered by LCD News. Includes 1st lien and unitranche deals.
We believe the lower mid-market remains the most attractive direct lending segment as it has high barriers to entry. However, to successfully select credits and construct a resilient portfolio requires trusted lending relationships as well as specialist knowledge of the market’s specific dynamics, which we have built over the last 15 years.
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Contact Callum to unlock insights on the lower mid-market’s potential
Callum Bell
Head of Private Markets & Alternatives
Trends to watch
Uncertainty is evergreen
With interest rates declining, the expectation at the start of the year was that global M&A activity was likely to rebound. However, that view has moderated following the shift in US trade policy, the continued Russia-Ukraine conflict and escalating tensions between India and Pakistan. Despite this, we still firmly believe the lower mid-market continues to present numerous primary buyout opportunities. We believe in picking disciplined managers with “evergreen” investment philosophies.
Consolidation and partnerships to continue
Collaboration between banks and private credit firms is expected to persist into 2025. There have already been several high-profile partnerships including Lloyds and Oaktree Capital Management as well as Barclays and AGL Credit Management. We expect this trend to continue as banks seek additional capital with flexible mandates to enhance their presence in the private credit asset class.
Ongoing interest rate cuts this year
Further rate cuts should support increased debt issuance in Europe. However, there are a number of possible headwinds that could delay rate cuts including White House trade policies, escalation of ongoing conflicts, and the US' international disengagement. The outlook for US interest rates remains uncertain, due to the anticipated inflationary effect of tariffs.
Our market outlook is positive as the pendulum swings towards growth. We believe that as an established and disciplined manager, investing for the long-term, we will continue to successfully capitalise on the increasingly evident underlying growth and consolidation.
Investment selection overview
Our team screened over 600 opportunities in 2024, predominately from the UK, Ireland, the Benelux and DACH regions.
Deep relationships with 75+ private equity managers continues to drive repeat, high quality investment opportunities. Capital preservation and superior risk adjusted returns remains the key focus in the investment selection process.
Reach out to Greg to discuss your borrowing needs
Greg Betz
Head of Direct lending
Investec continues to progress on its sustainability journey which is guided by five principles:
Positively contribute and align to the SDGs
Operate responsibly and ethically
Partner with our clients and philanthropy partners to maximise positive impact
Provide profitable, impactful and sustainable products and services
Actively advocate for industry alignment and best practice
Sustainability in direct lending
To fully understand the sustainability profile of our lending portfolio and to manage risk and reduce financed emissions, we appointed Alicia Forry as Head of ESG, Alternative Investments in February 2024.
We selected Holtara as our ESG partner to further embed sustainability, as the platform helps us gather and benchmark sustainability information from our portfolio companies.
ESG service provider backed by the Apex Group
15 years of sustainability experience in private markets, trusted by over 400 GPs and LPs, and employs 150+ ESG specialists around the world.
Responsible Lending Framework
In 2024, we refreshed the direct lending Responsible Lending Framework to include double materiality and alignment with industry standards including the Sustainability Accounting Standards Board (SASB) and the UN Sustainable Development Goals (SDGs).
To ensure successful implementation, we established an ESG Governance Committee in early 2025. We also mapped our entire portfolio to Investec’s Sustainable and Transition Finance Classification framework, aiding strategic planning and raising awareness about our role in the transition.
We commenced our first ESG survey in late 2024 with the assistance of Holtara, which focused on portfolio companies in our Private Debt Fund I (PDF I). In 2025 we aim to broaden this out to our second fund (PDF II) and across the direct lending portfolio, as appropriate.
The findings will provide more data to support the production of the Task Force on Climate Related Financial Disclosures (TCFD) and other reports and help to monitor our financed emissions.
The survey will also provide portfolio companies with access to their ESG metrics relative to private market industry benchmarks. This will help them prioritise their sustainability objectives and lead to more informed discussions on future priorities and the sustainability-linked financing options we can provide.
We look forward to sharing more information about our team’s approach to sustainability in our inaugural Direct Lending Sustainability Report and TCFD report, which will be published in June.
Impact
Contributing to our communities is important to the direct lending team, which is why we support CALM, a suicide prevention charity and The Felix Project, which redistributes surplus food to those in need. The mission of The Felix Project to divert food, which is one of the largest contributing sectors to global greenhouse gas emissions, from going to landfill and simultaneously to help those who are struggling to feed themselves directly aligns with both of Investec's two core SDGs of Reduced Inequalities and Climate Action.
The team organised several fundraising events in 2024, including a team wide month-long fitness challenge in October and more recently in March 2025 where the combined team exercise distance covered was equivalent to the distance from London to Beijing! We also volunteered on site with the Slade Gardens Adventure Playground as well as volunteering days for the Felix Project. We set ourselves a target to raise £10,000 CALM over a 12 month period and successfully did so.
Three members of our team also ran the London Marathon in April to fundraise for Future Dreams, a breast cancer support charity.
People
The team’s structure and breadth continues to evolve with 17 new colleagues joining our platform in 2024, bringing our headcount to 57 (+24% on the prior year). Highlights include:
- We built out a new Private Credit Management (“PCM”) team within Direct Lending to drive growth and enhanced oversight across the portfolio and to help scale the platform. The PCM platform comprised of 5 professionals in London and 4 in Mumbai as at December 2024.
- The integrated-ABL team expanded its geographic reach by making a senior investment professional hire in the Benelux region.
- We celebrated the 10th anniversary of our Benelux franchise by upgrading our office in Amsterdam Zuid.
- We added a dedicated non-sponsor capability to the Direct Lending platform. The team, formed in 2018, has built a successful network of entrepreneur, family office and business owner clients.
We prioritise diversity of talent and strive to ensure all our colleagues feel valued, respected and supported. Our Direct Lending team is now 33% female and represents 12 nationalities.
Training is an important aspect of ongoing development and in 2024 we hosted six training sessions by external and internal legal counsel on relevant direct lending topics. We also provided three bespoke ESG training sessions and two team members undertook an advanced course in sustainability linked loans.
Contact Alicia to learn how we can support your ESG goals
Alicia Forry
Head of ESG
Direct Lending in numbers
€3.5bn
75+
138
3.6x
57
33%
Key debt investments 2024
Meet the team
Investec Alternative Investment Management
Designed to harness the unique strengths of our organisation for the benefit of our investors.
References
1 Pitchbook 2024 Annual Global M&A report
2 Debtwire European Direct Lending rankings FY24
3 EY State of Private Equity Report Europe 2024
4 Q4 2024 Houlihan Lokey MidCapMonitor
5 LCD European Credit Markets Quarterly Wrap Q4-24
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