In European private credit, discipline is often a manager’s most valuable currency. As the market expands and the boundary between bank lending and private capital becomes less distinct, consistency of investment philosophy—particularly in specialist strategies—has become an important differentiator.
For managers operating in this changing market, success is measured not only by the volume of capital deployed but also by the precision of their underwriting. Unlike private equity, private credit primarily targets contractual income and the preservation of principal rather than capital appreciation.
Lending, not owning companies
Pemberton has built its European alternative-credit platform around a policy of avoiding style drift. The firm reported $32.5bn in assets under management. Its core approach is to act as a cash-flow lender rather than a “loan-to-own” investor. “I don’t want to own the company, ever,” said Douglass Welch, portfolio management conducting officer at Pemberton Asset Management, in an interview on 30 July 2026.
The firm’s core strategy focuses on senior secured lending to profitable companies. According to Pemberton, average leverage is about 4.5 times EBITDA. When a borrower encounters difficulties, the manager prefers to work with its private-equity owner to support the business and recover the investment.
Direct lending retains a premium
According to Pemberton, direct lending can provide a premium of 250 to 300 basis points over comparable single-B leveraged loans. Core mid-market loans are typically priced at 475 to 575 basis points above Euribor.
Banks remain active in parts of the lower mid-market and among companies with Ebitda above €100m. Larger borrowers can also generate ancillary business in payments, foreign exchange and derivatives, making them more attractive to banks.
A broader alternative-credit platform
Relevance in the European market today requires more than just direct lending. Pemberton’s platform spans a broad range of alternative credit strategies, including NAV financing for private equity funds or for their general partners, strategic risk transfer (SRT) and a trade finance.
By financing the mid-market economy assets—from jet engine parts for air cargo operators to road safety equipment for motorway extensions—the firm provides liquidity that traditional banks are increasingly unable to offer due to punitive balance sheet regulations (see Chart 1).
Chart 1: Middle Market Direct Lending Share Source: Pemberton, Morgan Stanley Report 2025, European Private Credit: Why Now?, August 2025.
Managing concentration risk
Pemberton’s direct-lending portfolio has limited exposure to software companies, which Welch described as a source of concern. According to figures he cited, software represents about 1% of the portfolio, compared with almost 8% in European leveraged-loan indices and 15% to 20% in comparable US benchmarks (see Chart 2).
Chart 2: Sector Breakdown of US and European Broadly Syndicated Loan Markets and Pemberton’s Direct Lending Portfolio Source:: Pitchbook, data as of 14 April 2026. Pemberton data, as of 5 February 2026.
Business services represent the firm’s largest sector concentration. “We have a pretty broad and diverse portfolio,” Welch said.
The firm’s approach to single-name exposure also reflects its caution. Welch said an allocation could reach 25% under MIFID2 regulation. However, his target is generally 2% to 5%, depending on the fund. Uncertainty surrounding the global economy, tariffs, input costs, regulation and recent stress in US private credit has made him more conservative, he added.
The trade finance fund is particularly notable as an open-ended vehicle that provides monthly liquidity, participating in the flow of investment-grade corporate receivables. Welch said its characteristics could make it suitable for a portion of some institutional investors’ cash allocations.
The sole-lender model
Another feature of Pemberton’s model is its capacity to act as sole lender on substantial transactions. For a €200m loan to a private-equity-backed company, for example, the firm can provide the full amount through several sub-funds. The borrower therefore deals with one lender rather than a syndicate of banks.
“We handle credit monitoring ourselves because the securities aren’t publicly listed,” Welch said. “We can’t rely on third parties for the credit oversight.”
Pemberton can allocate the resulting exposure among sub-funds according to investor requirements. Portfolio managers work with an independent credit team and transactional lawyers, while covenants are tailored to the risks of each borrower, Welch said.
Cultivating the next credit generation
Pemberton is also investing in succession planning and technology. Rather than recruiting exclusively from the leveraged-loan market, it hires professionals from accounting firms with experience analysing cash flow and financial performance.
The firm is using artificial intelligence to improve operational efficiency and process the volume of information required for credit analysis. It is also assessing how AI could affect the business models of individual portfolio companies.
By combining this infrastructure with a focus on established Western European markets, Pemberton is seeking to expand its platform without abandoning its underwriting discipline. That consistency will become increasingly important if private credit continues to grow while economic and portfolio risks become more complex.
