Private credit's overlooked opportunity: Why non-sponsored lending deserves attention

The sustained growth of private credit since 2008 has been as resilient as it has been impressive. Within the global direct lending market, private-equity sponsored credit dominates with a 70% share¹. In Europe, that figure rises even further, to around 90%.²  However, global allocators recognise a need to diversify their private credit exposures, and European non-sponsored credit offers attractive diversification.

As a starting point, it should be noted that non-sponsored lending will typically be a complement, not a replacement, to sponsor-backed private credit. The risk and return drivers are different, as is the typical borrower. Non-sponsored credit is neither better nor worse than sponsor-led lending, it is simply different.

Financing family-owned and entrepreneur-led businesses, non-sponsored lenders can access different borrowers, sectors and geographies, while earning a premium for bespoke origination and structuring.

Financing an underserved market

Banks’ retreat from transactions outside standard lending criteria, led by regulation and balance sheet optimisation, has created opportunities for specialist lenders.³

Within the prime non-sponsored segment, family owners may be asset-rich but cash-constrained, preferring flexible debt to equity dilution. Bespoke financing can address refinancing and growth investment in parallel.

While a large number of mid-sized firms continue to struggle to obtain adequate external finance, tighter bank regulation is likely to sustain the present financing gap, supporting demand for alternative non-sponsored lenders.

A premium for complexity

For investors, the returns centre on solving complex financing needs conventional lenders find difficult to accommodate.

P Capital Partners (PCP) is a Stockholm-headquartered private credit manager providing funding to entrepreneur-led and family-owned mid-sized companies in Europe. Over the last 20-years it has completed almost 200 transactions, managing more than €3.5 billion ($3.9 billion).

In PCP’s experience, family owners tend to be conservative on leverage. By illustration, PCP’s average portfolio leverage is 3.7 times, compared with 5.5 times for sponsored direct lending and 5.4 times for broadly syndicated loans in the first quarter of 2026.⁴ Typically, despite lower leverage, margins within European non-sponsored credit have recently surpassed those for both direct lending and broadly-syndicated loans.

_{Sources: Pitchbook (2025) based on LBOs; Carlsquare (2025), direct lending data is based on transactions covered by LCD News. Includes new-issue deals only, excluding repricings. Non-sponsored: PCP as proxy. Leverage excluding addbacks: Pitchbook LCD. YTD (non-sponsored) as at Q1 2026}

This margin profile suggests that complexity and flexibility have commanded higher margins without higher leverage.

Different exposures, closer oversight

Most European direct lending has followed sponsor deal flow, with around 55% of volume going to the UK and France.⁵ By sector, technology has been a key area, at about 30% of European direct lending issuance in 2025.⁶ That concentration brings uncertainties of its own, including aggressive EBITDA add-backs, covenant-lite structures and exposure to software borrowers vulnerable to AI disruption.⁷

Non-sponsored transactions in creditor-friendly jurisdictions, such as the Nordics, the Netherlands and Ireland, provide a good source of diversification together with asset heavy sector exposures. The diversification aspects may significantly lower the risk of duplicating exposures already held in an allocator’s portfolio.

Without a sponsor acting as a filter, the relationship with the borrower is direct. Non-sponsored loans that carry full financial covenants and information rights give a high level of insight into internal reporting and KPIs, and they often come with board observer seats.⁸ That allows closer monitoring, earlier intervention and the ability to advise management if a company underperforms. It also puts more weight on underwriting, including financial and legal due diligence, governance assessment and personal background checks.

What should institutional investors look for?

Non-sponsored lending is a specialist strategy. For institutional investors, the question is whether an allocation introduces genuinely different exposures with credible downside protections.

Due diligence should examine manager borrower overlap, sourcing capabilities, covenant effectiveness, and evidence the manager has lending experience across the economic cycle.

The non-sponsored credit market deserves attention from Asian investors seeking a diversified addition to their existing private credit allocations as it can add different borrowers, sectors and geographies to an existing portfolio. Competition for these loans is more limited, leverage lower and recent margins higher than in sponsored lending.

For Asian investors assessing options beyond traditional sponsored lending, this segment merits closer consideration as a differentiated source of private credit exposure.