Parallel lending: Five lessons learned

October 14, 2026

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Private credit investing has changed considerably over the recent past. Higher interest rates have raised borrowing costs, competition has intensified in parts of the market, and concerns around leverage, liquidity and credit quality have put greater emphasis on understanding the risks investors take to generate returns.

Against this backdrop, investing alongside European banks has reinforced three of our original assumptions about parallel lending (Figure 1). These principles shape how we approach the asset class and underpin five lessons we have learned.

Figure 1: Three principles behind our parallel-lending approach

1. Bank partnerships strengthen origination capabilities

One of the clearest lessons has been the value of bank relationships as a source of investment opportunities.

Europe remains a predominantly bank-financed corporate market. Banks have longstanding relationships with companies and extensive origination networks built over many years. Investing alongside them can therefore provide access to a broad pool of upper- and middle-market corporate borrowers that may be less accessible through traditional private credit channels.

But the benefit is not simply the number of transactions banks can originate. It is the choice that a large and recurring pipeline provides.

Across our parallel-lending platform, we have screened approximately 1,400 opportunities across multiple European markets and banks have accounted for around two-thirds of this origination. 

For us, the lesson is that the strength of an origination network should not be measured simply by how much capital it allows a manager to deploy. Its real value lies in providing a sufficiently broad opportunity set from which to construct a portfolio selectively.

2. Access only becomes an advantage when combined with selectivity

Our second lesson follows directly from the first: seeing more deals should not mean doing more deals. Around 85% of the opportunities screened on our platform have been rejected.

That matters in an asset class where large amounts of capital have been raised and managers can face pressure to put it to work. We believe a large pipeline should do the opposite: it should give an investment team the freedom to walk away when leverage, cash-flow generation, documentation, structure or pricing do not compensate for the underlying risk.

Independent underwriting is therefore central to the model. Investing alongside a regulated bank provides alignment with the originating lender, but it does not replace the need to form our own view of each borrower. The combination of bank-partnered origination and disciplined selection has become one of the defining characteristics of our approach.

Figure 2: A broad pipeline, selectively deployed

Opportunities screened across our parallel-lending platform

Source: Fig. 2. Muzinich & Co, as of 31st August 2026. For illustrative purposes only.  * Other third from sponsors and advisers

3. Look at the risk supporting the income, not just the income

It’s also important to look beyond headline private-credit yields.

Higher underlying reference rates can increase the income available from floating-rate loans. But those same higher rates increase borrowers’ interest costs. Assessing the sustainability of that income therefore requires an understanding of the leverage and debt-servicing capacity of the companies behind it.

This is why we deliberately target relatively low-levered businesses, primarily through senior-secured loans. Lower leverage can provide borrowers with greater capacity to absorb higher interest costs and can provide lenders with an additional cushion if operating conditions deteriorate. Within our evergreen parallel lending strategy, average borrower leverage has been around 3.5x EBITDA and the ratio EBITDA on Cost of Debt is north of 4x, with exposure diversified across more than 160 companies.

We believe the combination of seniority, conservative leverage and portfolio granularity can provide an important source of resilience.

Granularity is particularly relevant in private credit, where problems at individual borrowers can have a disproportionate impact on concentrated portfolios. Diversification cannot eliminate the possibility of losses, but spreading exposure across many companies, sectors and geographies can help reduce reliance on the performance of any single borrower.

The lesson is therefore not simply to seek attractive income. It is to ask how much credit and concentration risk is being taken to generate it.

Figure 3: Conservative leverage, broad diversification and natural liquidity

Evergreen parallel-lending strategy, portfolio characteristics

Source: Fig. 3. Muzinich & Co., evergreen parallel-lending strategy, as of 31st August 2026 Average leverage and EBITDA cover are portfolio averages GAV: gross asset value. For illustrative purposes only.

4. A private credit portfolio can generate natural liquidity

Matching the illiquidity of private assets with periodic investor redemption windows is one of the central challenges of an evergreen structure.

One approach is to maintain a significant allocation to liquid public securities that can be sold to meet redemption requirements. Our experience with parallel lending has however highlighted another potential source of liquidity: the private loans themselves.

Many parallel-lending transactions include scheduled term-loan amortisation, while borrowers may also repay loans early as they refinance, sell businesses or otherwise reduce debt.

Within our evergreen parallel lending strategy, amortisation and prepayments have generated natural liquidity equivalent to approximately 15–20% of GAV annually. This does not make private loans liquid securities or eliminate the need to manage liquidity carefully. But it can reduce reliance on selling public-market assets by generating cash naturally from within the private portfolio.

That distinction becomes particularly important during periods of market stress, when selling assets may mean accepting unattractive prices. For us, liquidity is therefore not simply a feature of the strategy's structure. It begins with the characteristics of the underlying loans and is considered from the outset of portfolio construction, helping reduce reliance on asset sales when markets are under pressure.

Bank and private capital are becoming increasingly complementary

Perhaps the most significant lesson is that the relationship between banks and private credit is more complementary than is sometimes assumed.

The expansion of private credit is frequently presented as a story of non-bank lenders taking market share from banks. Our experience suggests the distinction is becoming less binary.

Banks want to maintain valuable corporate relationships with low levered companies and the ancillary business associated with them. At the same time, regulatory capital requirements mean they need to consider carefully how much credit exposure they retain on their balance sheets. Bank assets that are not palatable for banks are sold to non-banks (via the originate-to-distribute business model), meaning no more skin-in-the-game of the seller bank; while bank assets that are palatable can be shared with non-banks (via the originate-and-share business model), meaning that there is still skin-in-the-game by the sharing bank.

Figure 4: Two ways banks share credit exposure with non-bank lenders

Source: Fig. 4. Source: Muzinich & Co. views and opinions, for illustrative purposes only.

Parallel lending can facilitate the originate-and-share business model, bring risk sharing and preservation of the ancillary business together. Banks can originate financing and remain invested alongside an asset manager, while sharing a portion of the exposure with institutional capital.

For investors, we believe this creates access to a sizeable pool of European corporate lending opportunities. Our analysis indicates the universe of European corporate credit potentially suitable for parallel lending is significantly larger than the European direct lending market.

This suggests the opportunity is not simply the product of a particular point in the credit cycle. It reflects a broader evolution in the way European corporate lending can be financed.

5. What have three years taught us?

Three years of managing an evergreen parallel-lending strategy have made our view of the opportunity more nuanced. Bank partnerships can broaden the opportunity set, but access needs to be matched by selectivity. Attractive income needs to be supported by conservative leverage, seniority and diversification. And in an evergreen strategy, liquidity can come not only from selling assets, but from cash generated naturally by the underlying portfolio.

Taken together, these lessons reinforce our belief that the next phase of private credit need not be defined by competition between banks and asset managers. Parallel lending can bring together banks’ origination capabilities and corporate relationships with an asset manager’s independent credit selection, institutional capital and disciplined portfolio construction.

We believe it is this combination that makes parallel lending a differentiated part of the private-credit opportunity and contributes to increasing the share of real economy financing in the system.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of October 2026 and may change without notice.

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