Direct lending through funds is predicted to rise as businesses are increasingly inspired to cut out banks as middlemen, according to Fitch Ratings.
The agency believes the ongoing process of deleveraging among European banks is fuelling a liquidity shortage, particularly with regards to property and corporate loans, which will be made up by the funds industry.
“Financing can serve different purposes including as working capital, a bridge between investments and capital calls or purely for leverage, which is generally limited to 50% of the total portfolio value,” reports the agency.
“It can also take different forms such as a revolving loan facility, a term loan facility, debt or senior shares.”
It adds: “With a two tranche liability structure, funds have two investment profiles: one higher return and one senior and secured.
“Fund debt and senior shares are sold to investors, while loans are currently kept on bank’s balance sheet. However, in the future, they could be syndicated and also sold to real investors.”