As American private debt funds face massive withdrawals, bankruptcies, and a crisis of confidence, Europe boasts a stronger regulatory framework to protect its savers and banks. With Basel regulation, lower exposure of individuals, and a central role for banks, the European private credit market appears better equipped to face the contagion risk from the United States, although not completely immune.
The European financial industry is usually critical of the European financial regulations, deeming them too conservative, restrictive, and risk-averse. However, recently, there has been rare praise for this framework. It has been highlighted that thanks to it, European savers are better protected today than their American counterparts in the event of a financial crisis. This shift comes at a time when private debt – the asset class of private equity that finances small and medium-sized European companies away from the scrutiny of public markets, often with leverage effects – is garnering increasing distrust from investors across the Atlantic.
Indeed, the United States is currently experiencing a crisis of confidence in this industry worth over $2 trillion. For weeks now, a multitude of panicked individual clients are withdrawing their investments, and seemingly healthy businesses are collapsing in succession. Should the same concerns be harbored in Europe?
“A prudent and protective framework”
“Caution should be exercised with this type of alarmist discourse,” warns Antoine Maspatiol from Eiffel Investment Group and co-chair of the private debt commission at France Invest, the association of French investment funds. “The European regulatory framework is solid,” adds Edouard Veber from Rothschild & Co, the other co-chair. According to him, “funds intended for individuals are protected by a more conservative regulation [than in the United States], which requires funds to have a liquidity cushion to reimburse retail investors.”
