European Private Credit Still Benefits From Structural Scarcity

Morgan Stanley argues that despite rising skepticism, European private credit continues to retain its “all-weather” characteristics due to persistent financing gaps, constrained bank lending, and resilient illiquidity premiums. 

• European private equity dry powder (~$292bn) remains roughly three times larger than direct-lending dry powder (~$97bn), sustaining long-term demand for private financing.
• Direct lending’s share of European middle-market buyout financing has surged from under 5% in 2014 to ~58% in 2025, while still remaining below U.S. penetration levels.
• Morgan Stanley argues recent stress cases like First Brands are being misclassified as private credit problems, despite primarily involving syndicated and asset-backed structures rather than sponsor-backed direct lending.

The broader debate may now shift from whether private credit survives higher rates — to whether Europe is still in the early innings of structural private-credit expansion.