London, 08 August 2012 -- Credit-oriented investment managers are expanding their assets
under management (AUM) by acquiring bank-loan portfolios for their
third-party clients, says Moody's Investors Service
in a new Special Comment published today. These managers are also
stepping in to lend third-party funds to corporates and small and
medium-sized enterprises (SMEs), which have been traditionally
served by European banks.
Moody's says that asset managers with the necessary credit-analysis
experience are best placed to take advantage of this opportunity to engage
in bank loan portfolio acquisitions and direct lending for their third-party
clients. However, Moody's notes that this opportunity
is not without challenges as (1) banks may face hurdles in selling these
portfolios due to the challenges of agreeing on valuation; and (2)
several regulatory challenges will have to be overcome in order for managers
to fully realise the opportunities left by deleveraging European banks.
The number of jurisdictions and legal regimes within Europe requires a
unique expertise to participate in both loan portfolio acquisitions and
direct lending. Moody's notes that managers without an expertise
in this area run an increased risk of future losses if they are to invest
in sectors and regions in which they lack such expertise.
The new report, entitled "Select Asset Managers Benefit from European
Bank Deleveraging," is now available on www.moodys.com.
Moody's subscribers can access this report via the link provided at the
end of this press release.
This growth opportunity for asset managers follows the plans by European
banks -- driven by market and regulatory pressures - to reduce
assets over the course of 2011-13. According to the IMF's
April 2012 Global Financial Stability Report, such assets are estimated
at nearly €2.0 trillion.
"Managers that have the knowledge and ability to evaluate and price
credit risk across a variety of European domiciles and sectors will have
a unique opportunity to compete for the acquisition of these portfolios.
For managers with this niche credit-investment expertise,
this opportunity is credit positive, as the expansion of their third-party
AUM will generate a longer-term, stable stream of investment
management fee income," explains Michael Eberhardt,
a Moody's Vice President - Senior Analyst, and the
author of the report.
Moody's says that the timeframe and sizeable pipeline outlined by
the IMF report and investor surveys, indicates that the credit-positive
effects will offer a medium- to long-term benefit to asset
manager franchises. In taking advantage of European bank deleveraging,
niche credit-investment managers are developing credit-investment
vehicles that offer risk-and-return profiles that can help
satisfy the long-term investor need for yield and assets that generate
stable performance in a challenging economic environment.
"Despite the advantages for credit-oriented managers,
the longer-term nature of the investment holding period required
by both investment opportunities implies that managers who lack the necessary
credit expertise and staff resources will find it difficult to raise third-party
funds in order to take advantage of these opportunities,"
adds Mr. Eberhardt. "In addition, the extension
of credit by asset managers without the requisite expertise to understand
and price these assets, or originate new lending to sectors in which
they have no expertise, will potentially experience losses and generate
unfavourable returns for their third-party investors."
However, regulatory and operational issues remain. By lending
to corporates and SMEs, asset managers will need to placate regulator
concern for the systemic risks posed by this disintermediation of traditional
banking. With regards to systemic concerns, Moody's
says that the challenge is reduced as the public sectors in several European
countries, including the UK, have acknowledged the need for
new sources of funding in meeting the needs of SMEs, at a time when
European banks are pulling back.
Apart from asset-manager specific concerns, Moody's
says that the process of bank deleveraging is not going to offer a smooth
pipeline for asset managers to grow their franchises, because banks
will find it difficult to sell assets at a time when asset prices are
subject to negative pressures due to the macroeconomic backdrop.
Subscribers can access this report via this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143575.
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Michael Eberhardt, CFA
Vice President - Senior Analyst
Managed Investments Group
Moody's Investors Service Ltd.
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MD - Managed Investments
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Moody's says asset managers to benefit from European bank deleveraging