Why European Banks Are Retreating (and Private Credit Is Stepping In)

Why It Matters

As banks tighten lending under stricter regulations, private‑credit funds become a critical source of financing for mid‑market borrowers, reshaping risk allocation and offering higher yields for investors.

Key Takeaways

• Direct lending consumes ~80% of private‑credit capital raised 2022‑2026.
• European real‑estate credit remains bank‑dominated, unlike U.S. non‑bank market.
• Retail redemptions trigger “bank‑run” style pressures on BDC vehicles.
• Basel III/IV output floor forces banks to reduce risky lending, boosting private credit.
• Regulatory fragmentation and cultural bias limit private‑credit growth across Europe.

Summary

The episode examines why European banks are pulling back from lending and how private‑credit funds, especially real‑estate focused managers like Zenzit Capital, are filling the gap. Host Max Wy interviews co‑founder and CIO Thomas Lloyd Jones, who explains the structure of private credit, the dominance of direct‑lending strategies, and the distinct dynamics in Europe versus the United States.

Jones highlights that roughly 80% of private‑credit capital raised between 2022 and 2026 has flowed into direct‑lending, leaving asset‑backed credit – real‑estate, infrastructure, specialty finance – under‑represented. He points to recent stress in U.S. BDCs, where retail investors’ mass redemptions created a “non‑bank bank run,” a phenomenon less pronounced among institutional investors.

Key examples include the contrast that about 80% of European real‑estate loans are bank‑originated versus roughly 80% non‑bank in the U.S., and the Basel III/IV “output floor” which raises banks’ capital requirements, prompting them to retreat from riskier, smaller‑ticket deals. Only 14% of European bank lending is cross‑border, underscoring regulatory and cultural fragmentation.

The discussion implies a sizable opportunity for private‑credit managers willing to navigate Europe’s regulatory maze and build pan‑European origination networks. Sophisticated investors are already shifting toward higher‑yielding private‑credit products, as illustrated by the Fundrise Income Fund’s strong returns, signaling a broader reallocation of capital away from traditional banks.

Original Description

Learn more about the Fundrise Income Fund here: https://fundrise.com/mm

In this episode of Other People's Money, Thomas Lloyd-Jones, Co-founder and CIO of Zenzic Capital, joins the show to unpack the nuances of the real estate private credit market. He explains how the media often conflates direct lending with the broader asset class, overlooking real estate and asset-backed lending. Lloyd-Jones details how increasing banking regulations are forcing traditional lenders to retreat, creating a widening gap for opportunistic credit funds to step in.

This podcast is for informational purposes only and not an inducement to invest with Zenzic Capital. Zenzic Capital’s investment products are limited to professional clients only. The information within this podcast should not be relied upon as tax, legal or investment advice.

Learn more about Zenzic Capital: https://zenziccapital.com/

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Timestamps:

00:00 Intro

01:52 Private Credit Breakdown

03:32 BDCs And Redemptions

06:35 Allocation Failure Debate

08:47 Regulation and Fragmentation

12:07 Basel III Shift

14:10 Fundrise Income Fund

15:10 Systemic Risk and Leverage

17:36 Banks’ Retreat is Opportunity

20:56 Good vs. Bad Risk Premia

24:39 Senior Finance

28:44 Downside Protection and Spotting Bad Deals

37:48 Macro Matters for Exits

40:13 Finding Fixable Distress

43:22 Geopolitics and Rate Shock

47:01 Preferred Equity Playbook

51:49 When Development Risk Pays

54:52 Student Housing Reality Check

59:40 Macro Allocation Framework

01:01:59 Conclusion