DIY Investor Magazine
|
June 2017
54
INSTITUTIONAL INVESTORS EMBRACE DIRECT AND MARKETPLACE LENDING – WILL DIY INVESTORS
BE ABLE TO ACCESS THE SECTOR THROUGH THEIR TRADITIONAL BROKERS AND ADVISERS?
Jake Wombwell-Povey
Founder and CEO, Goji Investments
Institutional investors are pouring money into direct
lending strategies fuelling the growth of the sector.
Notable recent fundraises include:
•
Hayfin Capital Management raised more than
€3.5bn for its direct lending strategy in February
•
Park Square Capital and Japanese bank SMBC are
setting up a €3bn direct lending JV
•
Alcentra, the alternative fixed income arm of BNY
Mellon Investment Management, raised €4.3bn for
its European direct lending strategy.
Graeme Delaney-Smith, head of European direct
lending at Alcentra said ‘having done due diligence,
investors have now taken their opportunity to invest.
It’s an asset class that they didn’t really have access to
before because the banks were by and large the sole
provider of lending across the European market – that
has obviously changed.’
STEPPING INTO BANKS’ SHOES
Since 2007, asset managers have been lending money
to companies as banks have retrenched. A decade
on, the appetite is only increasing among institutional
investors hungry for returns and wary of market volatility.
A recent Natixis survey of 500 global asset managers
found that faced with volatility, greater risks and still-low
yields, institutional investors are raising their exposure
with 44% considering increasing the use of direct
lending in the next 12 months.
‘Momentum is really starting to build now,’ said Rohit
Kapur, senior fixed income manager at Aon Hewitt. He
said investors are interested in direct lending because
they receive an illiquidity premium over traditional fixed
income and are more comfortable now managers have
established a track record since the market took off in
earnest around 2012. The benefit of liquidity was also
lessened in a low yield environment.
Hayfin managing director Glenn Clarke added:
‘Investors in direct lending strategies are compensated
for the illiquidity as coupons are typically higher’, who
also commented on the increased diversification.
ALLOCATIONS
Institutional investors have de-risked their portfolios
since the financial crisis, out of equities and into assets
that better match their liabilities. To invest in direct
lending, they have been allocating away from lower-
yielding fixed income or further out of equities.
‘What we have tended to see clients do is reduce
allocations to investment-grade and equities to make a
risk neutral move into alternative credit including direct
lending,’ said Gregg Disdale head of illiquid credit at
Willis Towers Watson.
A direct lender added: ‘Credit is safer than the
rollercoaster of equity and, in the end, investors will
probably get the same returns; the returns from direct
lending are basically just as good as equity.’
Pension schemes have allocated 5%-10% of their
portfolio to private debt, including direct lending, real
estate debt and infrastructure debt, said Sanjay Mistry
of Mercer, sitting between their fixed income and
alternative asset allocations, rather than falling into one
or the other. Funds are also starting to invest across
different managers to diversify their portfolios.
RETAIL INVESTORS ARE PILING INTO THE
SECTOR…BUT IS THIS WELL GUIDED.
Over 170,000 retail investors have invested in the
sector directly on P2P platforms which will grow now
bigger platforms, such as Zopa, are now launching their
Innovative Finance ISAs. This direct distribution model
has reinforced the sector’s mantra of disintermediation
THE BANKS WERE BY AND LARGE THE SOLE
PROVIDER OF LENDING ACROSS THE EUROPEAN
MARKET – THAT HAS OBVIOUSLY CHANGED
