While the Draghi report joins a long shelf of proposals to make Europe more like America, firms like Muzinich & Co are generating alpha precisely because it isn't.
Justin Muzinich, whose firm has maintained eight offices across Europe since the late 1990s, made an interesting observation during IPEM Global 2025: regulation creates barriers to entry, and it allows higher returns to persist for credit specialists much more than in the US, which is one unified market.
Photo: Justin Muzinich talks about their European footprint.
The very complexity that keeps Brussels bureaucrats up at night - different regulations in different countries, the impossibility of a German insurer easily investing in a French fund structure, the need to navigate multiple legal systems - is precisely what keeps spreads at 650 basis points in the lower mid-market while large-cap deals done out of London have compressed to 500 basis points.
As Muzinich told IPEM delegates: “We're still making average spreads in our current fund of about 650. We have not seen spread erosion.”
Everyone can compete for large-cap private equity deals coming out of London; that’s why spreads have compressed. But not everyone can navigate the Dutch regulatory environment while simultaneously understanding Italian corporate law and maintaining relationships with medium-sized family businesses in Ireland.
If you’re a lower mid-market credit specialist, that's not a bug in the system that needs fixing. That’s a key feature.
Photo: Christoph Baviere of Eurazeo discussing the appeal of the European market alongside Muzinich.
Muzinich's firm sees roughly 500 deals annually and operates with a 3% selection rate. They haven't experienced the spread compression that's squeezed returns in more accessible markets. Why? Because the very friction that frustrates pan-European reformers is protecting their returns.
This creates a fascinating paradox: the more Europe "fixes" itself by removing barriers and simplifying structures, the more it destroys the conditions that allow specialised credit investors to generate alpha.
There's another dimension to this that challenges conventional wisdom. In US credit markets, where everything is unified and accessible, investors can afford to be concentrated. In Europe, Muzinich argues, diversification isn't just prudent, it's fundamental to the strategy.
In credit, as opposed to equity, you want to be diversified, because over the life of a fund, value can move around.” says Justin Muzinich.
Muzinich has been operating in Europe since 1998. Justin remembers well when American firms arrived during the dot com boom and fled after 2008.
His firm invested more and opened more offices during the crisis. That commitment to understanding local cultures, speaking local languages and building trust over decades is what creates access to the opportunities that fragmentation protects.
Quick money hates complexity. Patient capital can exploit it. However, the pressure toward harmonisation is relentless and probably irreversible.
For private credit investors, this raises a fundamental question - how much alpha might be lost in the process?
As it currently stands, credit specialists with a long-term commitment have an abundance of opportunities to lend to over 35,000 private companies across Europe.
In that respect, the region’s fragmentation is its strength, not its weakness. Moreover, the region’s improving stability and macro story continues to offer a compelling risk return profile for private markets investors.
The question isn't whether Europe will simplify. It's whether investors understand what they'll lose when it does.