Investors optimistic, bullish on European structured credit – BofA, King Street, Blackstone, Federated Hermes

Jun 13, 2025

Guest

Andrew Lennox

In this lively discussion, Alex Batchvarov from Bank of America shares insights on the irreversible trends reshaping capital flows, pointing to a shift in European credit appeal. Young Choi of King Street highlights the changing investor preference towards Europe despite previous concerns. Alex Leonard from Blackstone notes the influx of global investors into European markets, while Andrew Lennox of Federated Hermes emphasizes the resilience of ABS and CLOs amidst market volatility. Together, they contemplate the promising future of structured credit in Europe.

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INSIGHT

Cautious Optimism Amid Stability

The structured finance sector shows no systemic risk but geopolitical and political uncertainties cause cautious optimism.
Markets reflect credit and technical risks adequately, but sudden geopolitical surprises are hard to price.

INSIGHT

End of US Exceptionalism Thesis

Irreversible changes include the shift away from U.S. exceptionalism and dollar dominance.
Investors increasingly seek diversified geographic exposure, boosting demand for European and other non-US securitization markets.

INSIGHT

Regulatory Barriers to Europe ABS

European securitization market has lagged due to overly conservative and costly regulations.
Reforms aim to ease burdens without relaxing risk standards, making the market more cost-effective and competitive.

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The mood at the Global ABS 2025 structured credit industry confab this week was positive, according to bankers, asset managers and investors at the Barcelona conference. Taped (mostly) live in Spain, Credit Exchange host Lisa Lee caught up with guests from Bank of America, hedge fund King Street, Blackstone and Federated Hermes.

Alex Batchvarov, managing director, global research at Bank of America:

When we take a look at the macro picture, there are certain changes which are gathering speed, and I think to some degree – maybe to a large degree – are irreversible.

The capital flows are changing direction. US exceptionalism is now being questioned.

[For] the structured finance sector, there are not many reasons for concern with regard to credit performance or structures or documentations.

Young Choi, global head of trading at King Street:

The tone was relatively constructive. There seems to be a preference from the crowd in Barcelona for European credit versus US corporate credit.

A couple of years ago if you asked that same question, it would have been reversed. There were a lot of things that concerned people about Europe. It hasn’t completely flipped, but I think the narrative has definitely changed.

Alex Leonard, senior managing director and head of European liquid credit strategies at Blackstone:

We're definitely seeing a lot more investors coming from wider locations. Previously it would have been primarily European-only. We’re now talking to Asian investors, Canadian investors, African investors, all wanting to discuss that opportunity in Europe with Blackstone. So I think that’s positive.

We do clearly need to remain cautious, but certainly, looking at the fundamentals and the real data we’re seeing across all of our portfolio companies, we generally continue to feel good about European credit.

Andrew Lennox, senior portfolio manager at Federated Hermes:

There's a lot of issuance in the pipeline, both on the ABS side and the CLO side. We’re going to have a busy post-conference period.

We’re starting to see some early signs of a pivot away from the allocations toward the US and investors looking for opportunities elsewhere, and Europe seems to be a beneficiary of that. It seems that Europe is picking up some momentum, whereas the US had it for a number of years. The US may be seen as a less reliable trading partner, but also as an investment opportunity.