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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

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 combined with co-lending agreements with partner banks.

Strong origination

A strong pan-European reach combined with co-lending agreements with partner banks, provides a consistent flow of high-quality investment opportunities.

Experience throughout cycles

The team has an average of 16 years’ experience per member and can successfully structure, execute, monitor and restructure 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

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: 65%-100% of portfolio, Unitranche loans: 0%-35% 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% net per annum, compounded annually
  • Base currency: Euros, with limited hedge on foreign currency exposure


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Europe v US: For direct lenders, where is the relative value? Direct lending is a promising market in Europe, but does it offer better opportunities than its more-established US counterpart? Patrick Marshall, Head of Private Debt & CLOs at Hermes Investment Management, assess the differences between the two and presents his views on what it takes to invest successfully in European loans. Europe: New kid on the bloc Europe’s emergence as a direct lending market is still relatively recent. The changing regulatory landscape in the post-financial crisis era transformed loan markets. New capital adequacy rules, amplified by the Capital Requirements IV directive under Basel III, have forced banks to reduce risk and therefore the size of their loan books. Prior to 2008, banks provided more than 80% of larger corporate loans in Europe. Data from S&P LCD shows the European loan market grew aggressively from €15bn in 1998 to €165bn in 2007, a year before the global financial crisis. In its wake, small- and medium-sized (SME) businesses had little access to capital. Their borrowing needs could not reach the scale required to cost-efficiently access the bond market. This created a gap in the market for alternative lending, and investment firms have filled the void left by European banks to provide SME financing. Direct lending now accounts for 10% of Europe’s loan market[2]. This rapid growth is in no small part driven by a surge of interest in the asset class. Investors with long-term liabilities are attracted by an illiquidity premium of almost 60bps, as well as a desire for strong yields that are lowly correlated with listed markets, capital preservation and inflation protection.

Sales Contacts

Jakob Nilsson, Head of Business Development, Asia
Lin Chew, Director - Business Development, Asia
Byung-Hoon Choi, Director - Business Development, Asia
Tai Watanabe, Manager - Business Development, Asia