What role can private debt play in financing Dutch SMEs, and how does that role compare with that of banks?

Marijn Jansen: ‘Over 98 per cent of Dutch businesses are small and medium-sized enterprises. This broad group of companies forms an indispensable link in the Dutch economy. At the same time, it is precisely this group that faces a major sustainability challenge. Investments in energy efficiency, electrification, circularity, health or cleaner production require financing that adapts to the specific situation of the business. Banks remain essential in this regard, but cannot and do not always wish to take the full financing requirement onto their balance sheets. This creates scope for private capital providers to supply supplementary capital, with the potential to achieve a good return on that investment. In practice, this complementary role often takes the form of partnerships with banks and other private capital providers, such as club deals in which all parties involved provide a share of the financing – known as co-lending. This is well suited to the mid-market SME segment: companies that require bespoke solutions, slightly higher leverage or financing for sustainability initiatives. The division of roles between the bank and the private debt financier shifts as a result, but the collaboration tends to become closer rather than disappearing.’

How does private debt fit into investors’ portfolios?

Jansen: ‘In the public perception, private debt is often discussed as a single investment category with a single risk profile. This misconception regularly crops up in discussions with investors. However, the term ‘private debt’ encompasses a wide range of sub-segments: venture debt, mezzanine and subordinated loans have a relatively high risk profile, whilst senior secured debt (loans with a first lien and stronger covenants) offers an attractive risk-return profile. Many investors automatically associate private debt with the riskier variants. However, with every private debt proposition, it is a legitimate question as to exactly which part of the spectrum is being referred to.’

Mark Leeijen: ‘For pension funds, this distinction is relevant. Board members and fiduciary managers are seeking building blocks that align with their age-dependent investment policy in accordance with flexible and solidarity-based defined-contribution schemes, and which demonstrably contribute to impact and sustainability ambitions. At the same time, insurers are also seeking credit exposure that can be efficiently integrated under Solvency II. And other parties with a direct interest in the Dutch economy can also find an attractive way to diversify their portfolios.’

Why is it important to invest close to home?

Deanne Arends: ‘The desire to invest in the Dutch economy is no coincidence. For pension funds, investing close to home means that members’ assets flow back to the companies and the communities of which the members themselves are part. To companies that are becoming more sustainable, scaling up or investing in the energy transition, circular production, health or affordable housing. Financial returns and demonstrable impact come together in the same investment, without one having to come at the expense of the other.’
 

Private debt can be a building block for both sides of the Wtp portfolio.

 
What role can investing in Dutch impact private debt play within the Wtp framework?

Leeijen: ‘The aforementioned spectrum of risk profiles means that private debt can play a role in several areas of Wtp portfolios. Long-term, fixed-rate loans such as private placements and long-term loans to Dutch housing associations guaranteed by the Social Housing Guarantee Fund (WSW financing) fit well within the protection portfolio or interest rate module due to their high duration and strong correlation with the risk-free swap rate. Loans with shorter maturities in the variable-rate segments within senior secured debt fit well into the return portfolio. It is precisely here that an attractive spread and low interest rate risk can form an appealing complement to equities and corporate bonds. Private debt can thus serve as a building block for both sides of the WTP portfolio.’
 

To measure is to know’ is not a compliance obligation, but the very essence of what distinguishes an impact investment from a well-intentioned endeavour.

 
Is now the time to invest in private debt?

Jansen: ‘Recent negative news about US private credit funds – particularly regarding limited redemption options and rising defaults – has led some investors to develop cold feet about the asset class as a whole. In our view, these fears are unfounded. The problems are occurring almost exclusively in US semi-liquid retail funds that promised quarterly liquidity on illiquid loans, concentrated in sectors vulnerable to AI disruption. This contrasts with the broader private debt universe, the vast majority of which is institutional and closed-ended in nature and does not face this liquidity issue. The causes of the US turmoil therefore lie in specific market segments, not in private debt as an asset class.’
 

The causes of the US turmoil lie in specific market segments, not in private debt as an asset class.

 
What should you look out for when impact investing in private debt?

Arends: ‘What impact investing in private debt additionally requires, regardless of region, risk profile or maturity, is discipline in the way impact is defined and monitored. Impact private debt has undergone a process of professionalisation in recent years: moving from broad sustainability claims to explicit, measurable impact KPIs that are contractually agreed and reported periodically. Without that discipline, impact washing is a real risk. With that discipline, impact becomes just as robust and verifiable as a credit assessment. ‘To measure is to know’ is therefore not merely a compliance obligation, but the very essence of what distinguishes an impact investment from a well-meaning intention.’

How do you go about this?

Arends: ‘Within our organisation, we translate these observations into a targeted approach: senior secured financing for the real economy in the Netherlands and North-West Europe, a deliberately defined credit quality segment, explicit and measurable impact KPIs, and an investor base whose time horizon aligns with the maturity of the underlying loans. That is where the real opportunity lies for pension funds: not in ‘private debt’ as a catch-all term, but in this specific application of it: close to home, where returns and demonstrable impact reinforce one another. The same approach is just as relevant for insurers, family offices and other institutional investors with a similar investment horizon. We’d be happy to discuss this further.’