The Loan Market Association (LMA) is embarking on a new growth strategy aimed at strengthening engagement with members across more than 70 countries, CEO Scott McMunn told Paperjam during a visit to the offices of Elvinger Hoss Prussen in Luxembourg on 8 June 2026.
LMA sets course for next growth phase
The organisation has structured its strategy around three priorities: recognition, penetration and triage—the latter referring to keeping its activities focused on documentation, standardisation and market efficiency. Recognition ensures the LMA has a formal voice at the table with global regulators and supervisory bodies, while penetration aims to deepen relationships with its approximately 900 member firms representing around 17,000 registered users.
The LMA’s current strategic priorities include navigating complex regulation, embracing emerging technologies like generative AI and tokenisation, and supporting the growth of private credit. With a future membership target of 1,200 to 1,300 firms, the association is expanding its international footprint, notably through the appointment of a head of the Middle East to better serve capital flows between the Middle East, Europe and Africa.
Europe and US private credit take different paths
A major theme discussed during the interview was the divergence between the US and European private credit sectors. Unlike the US, where Business Development Companies (BDCs) provide high transparency through public filings, the European market is primarily composed of private vehicles, such as separate accounts or locked-in fund structures, which provide less publicly available data.
Furthermore, European borrowers tend to be mid-caps, often family-owned companies with lower leverage multiples—typically 3.5x to 4.5x— compared with the larger deal sizes and leverage levels seen in the US market, where leverage can reach 7.0x.
Europe resists US-style PIK boom
McMunn noted that while US default rates are a point of market concern, the European market remains more resilient due to this lower leverage and a cultural stigma surrounding restructuring and bankruptcy. He argued that Europe's stronger emphasis on directors' fiduciary duties contributes to more conservative behaviour. "There's a lot more fiduciary responsibility on the directors," he said.
The rise of “payment in kind” (PIK) notes—where interest is capitalised and added to the principal instead of being paid in cash—is more prevalent in the US than in Europe. While this mechanism can provide companies time to resolve financial trouble, it also risks delaying eventual defaults.
Certain instruments shouldn't be in vehicles that offer liquidity.
However, McMunn highlighted that European markets have not adopted PIK at the same scale. Instead, the European direct lending market is characterised by increased margin compression resulting from high competition, rather than a significant weakening of credit quality.
Liquidity and valuation become key risks
Private market assets, including private credit and private equity, are typically valued using manager-defined methodologies overseen by valuation committees and supported by periodic audits, explained McMunn. While valuation approaches differ across managers, concerns arise when illiquid assets are held in vehicles that offer investors periodic liquidity.
“Certain instruments shouldn't be in vehicles that offer liquidity because if you don't have an asset that trades, how can you then show a market-clearing price?” McMunn asked. He highlighted the need for robust valuation frameworks and guardrails from both regulators and asset managers, particularly for products distributed to retail investors who expect access to liquidity.
McMunn emphasised that maturity transformation—funding long-dated assets with short-term liabilities—is a historical risk that regulators are now acting more quickly to mitigate.
The two high-level defaults, the negativity on BDC redemptions, the SaaS headlines and their overleverage, and the payment in kind have happened at the right time.
However, he did not express a view on whether independent third-party valuation should become mandatory for private market evergreen funds where pricing is key to maintain trust in the vehicle.
LMA: Eltif 2.0 balances access and protection
Regarding liquidity and retail access, the LMA supports the European Union's implementation of the European Long-Term Investment Fund, or Eltif 2.0. These vehicles are designed to bridge the financing gap by allowing retail investors to diversify into private assets, provided there are strict “guard rails” regarding transparency and redemption gating.
Europe aims to avoid US private credit pitfalls
Finally, McMunn said the LMA continues to foster collaboration between traditional banks and private credit providers. While the European loan market remains largely bank-driven—apart from leveraged finance—new partnerships are emerging where banks originate deals for private credit funds to hold, rather than keeping them on their own balance sheets.
The LMA's role is increasingly one of a “convener,” bringing together regulators and non-bank lenders to ensure the real economy remains financed while monitoring systemic risks.
For McMunn, recent stress points in the US market serve as a warning rather than a threat, giving Europe an opportunity to strengthen safeguards before similar risks emerge. “The two high-level defaults, the negativity on BDC redemptions, the SaaS headlines and their overleverage, and the payment in kind have happened at the right time,” said McMunn. He added they force more scrutiny in Europe “to put more guardrails in place now rather than later.”
