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European Direct Lending

Home / Capabilities / Private Markets / European Direct Lending

Objective: Securing yield through long-term lending partnerships

"The European Direct Lending strategy aims to consistently outperform for our investors
by lending to attractive, growing businesses on terms seeking capital preservation
and yield capture."

Patrick Marshall, Head of Private Debt and CLOs

Why invest with the Hermes European Direct Lending strategy?

  • Focused on quality: access to the stable, low-correlated returns offered by senior-secured loans to middle-market businesses in the UK and Europe
  • European SME focus: flexibility to invest across Europe.
  • Strong origination: origination agreements with European Banks, plus the team's own contacts in the loan market, provides consistent flow of high quality investment opportunities.
  • Experience throughout cycles: the team has total of 76 years’ investment experience, which includes successfully structuring, executing, monitoring and restructuring loans.
  • Inflation protection: the coupon payments of senior-secured bonds move in sync with interest rates, preserving value in inflationary periods and providing a base return when rates are low.
  • Enduring opportunity: banks continue to withdraw from the business-lending market, enabling direct lenders to partner with mid-market businesses – a shift supported by European governments.

The Hermes Direct Lending Cycle:

Direct_Lending_infographic__@72dpi_700px_wide

European Direct Lending video

Mark Miller, Head of Institutional meets with Patrick Marshall, Head of Private Debt and CLOs to discuss the Hermes European Direct Lending Strategy.

European Direct Lending podcast

Mark Miller, Head of Institutional meets with Patrick Marshall, Head of Private Debt and CLOs to discuss the Hermes European Direct Lending Strategy.

Strategy Information

Target return
EURIBOR plus 5-6% gross annualised
Universe

Senior loans to European mid-market businesses
− European loans: 65%-100% 
− UK loans: 0%-35% 

Eligible instruments
Senior-secured loans: 75%-100% of portfolio
Unitranche loans: 0%-25% of portfolio
Targeted leverage
Leverage below 5.5x for senior-secured loans/6.5x on unitranche loans
Fees

Management fee: 75bps
Performance fee: 10% of returns
exceeding EURIBOR +3.5%

Base currency
Euros, with limited hedge on
foreign currency exposure