How Europe’s CLO market is coming of age: A new chapter for private and structured lending?

To the point

• Europe’s credit market has matured, with private credit now larger than syndicated loans and CLOs (collateralized loan obligation)  central to market functioning.
• CLOs remain resilient across cycles, connecting investors to corporate credit and offering flexible risk-return options.
• New CLO ETFs (exchange traded funds) are broadening access, turning AAA-rated tranches into liquid, tradable income products.
• Investor appetite for European credit is strong, driven by demand for defensive yield and relative value.
• AI and data tools are enhancing portfolio monitoring, supporting disciplined, forward-looking credit management.

Introduction

What was once a bank-dominated ecosystem has evolved into a deep, diversified landscape powered by private lenders, syndicated loans and structured products like collateralized loan obligations (CLOs). Even against the backdrop of geopolitical tension and slower growth, investor appetite continues to build, helped by product innovation and investor’s persistent search for yield. 

To understand what is driving the rise in both private and liquid credit, we spoke to Alex Leonard, senior managing director and head of European liquid loan strategies for Blackstone Credit and Insurance (BXCI). Based in Ireland, Leonard oversees one of the largest liquid credit platforms in Europe, investing across the broadly syndicated market while also serving as senior portfolio manager for BXCI’s European CLOs and liquid loan funds.

Leonard sees a market that is currently defined by choice. “Flexibility is key at the moment,” he explains. “Borrowers value options, and the private and broadly syndicated loan markets serve different needs. The syndicated loan market can provide liquidity and competitive pricing for generally large, straightforward credits, while private credit can offer certainty of execution, especially in more volatile markets, and also bespoke terms which borrowers value.”

The shift has rewritten Europe’s credit landscape, with the region now dominated by a broader mix of private lenders, syndicated loan activity and rising demand for structured products such as CLOs. Investors have expanded their toolkit too, seeking yield, resilience and access through new vehicles like CLO-backed exchang traded funds (ETFs) that package the safest tranches into tradable products. 

Against this backdrop, Leonard manages a platform operating at the center of these market dynamics. “If you look at corporate credit specifically, the European syndicated loan market is roughly US$400 billion, while private credit has grown to about US$560 billion. Globally, private credit is around US$2 trillion and, depending on how you define it, the total opportunity could be as high as US$30 trillion.”

What stands out is not just the growth, but the durability of activity. "Even in a year when leveraged buyout activity was relatively quiet, both markets continued to grow,” Leonard explains. “Banks kept the syndicated space active through refinancings, add-on financings and dividend recaps, which shows the underlying resilience of the system.”

This resilience matters because CLOs remain the structural backbone of the leveraged loan market, and their role in this ecosystem is fundamental when it comes to linking issuers with a broad investor base. Leonard is unequivocal about their importance.

“CLOs are absolutely central,” confirms Leonard. “They are the engine that connects investors to corporate borrowers. By pooling hundreds of senior secured loans, they allow investors to choose where they want to sit in the capital stack, from AAA-rated senior debt to the more risk-taking equity tranches.” A core appeal of this structure lies in its performance. “CLOs have proven resilient through multiple credit cycles. Senior tranches have maintained stability and low default risk, while investors in the equity market have enjoyed strong returns when held through volatility.”

Leonard reaffirms that the momentum in European CLO markets is accelerating. Lower funding costs, he notes, strengthen the case for CLO equity, which is attracting renewed interest from both established and newer entrants to the market. The evolution has created space for something novel in Europe: CLO ETFs. Here, Leonard sees genuine structural change.

“A CLO ETF essentially packages the safest part of the CLO, the AAA-rated tranches, into an ETFT that investors can buy and sell like a stock,” he says. “It’s about democratizing access. CLOs were historically the domain of institutional balance sheets. Now a broader range of investors can access high-quality floating-rate credit with daily liquidity.”

This sits comfortably with investor demand for defensive yield. “We view CLO ETFs as cash-plus products that are low-risk, short in duration and income generating. The European AAA CLO market, now above US$176 billion is deep enough to support this evolution so we’re working with partners who have a lot of experience in this space.”

Inevitably, macro uncertainty looms in the background. Leonard sees it shaping positioning but not dampening opportunity. “We’re focused on defensive positioning, with regard to the underlying loan portfolios, high-quality, senior-secured exposures and well-structured deals,” Leonard says. “Credit doesn’t need high gross domestic product (GDP) growth to perform. Even a 1-2% growth environment is adequate if businesses continue to generate steady cash flow and can service their debt.”

Technology, particularly AI, is another factor reshaping how credit risk is viewed. “AI is already starting to change how businesses operate, and by extension how we analyze credit risk,” Leonard explains. “But it’s important to separate the noise from the substance. As lenders, our focus is always on a company’s ability to generate cash flow and service debt. AI doesn’t change that principle, but it can change the dynamics within industries, cost structures, competitive advantages and even how demand is captured. Two companies in the same sector can diverge quickly based on how they adopt it.”

Blackstone is applying the same lens internally. “We’re using data and automation to help portfolio monitoring, track key performance indicators (KPIs) and anticipate early warning signs in performance. AI is reshaping industries while giving us new tools to be better investors.”

Sentiment toward Europe, meanwhile, has improved meaningfully. “We’re seeing increased allocations from global investors, from Japanese banks to US insurers. They see Europe as stable, well-regulated and attractive on a relative-value basis,” Leonard notes. “The region has become less bank-dependent and more capital-markets-driven, which increases resilience and liquidity.” 

Ireland plays an important role in this next phase. “Our European CLO platform is managed out of Dublin, which has become a hub for structured credit,” he adds. “The regulatory environment is constructive and the talent base strong.”

Conclusion

Taken together, Leonard sees a maturing market at the start of a new chapter. “CLOs have proven their worth through multiple cycles, and the arrival of CLO ETFs marks another step forward,” he says.  “They bring more liquidity, broaden the investor base, and deepen understanding of the asset class. Wrapping them in an ETF structure makes them easier to access and easier to trade and ultimately shows that Europe’s credit market has truly come of age.”