EUROPEAN fund managers are on the cusp of stepping into the $500bn (£321.7bn) a year market lending directly to the economy amid an exodus of bank financing, a major new study says.
Analysts at investment bank Societe Generale say debt issued by euro area businesses could climb to nearly 40 per cent of European GDP to mirror levels seen in the US, as companies seek alternative sources of financing as banks pull out of the market.
“Market financing disintermediation is increasing in the Euro area,” SocGen global head of asset allocation Alain Bokobza told City A.M. “It will become a sizeable market because you are looking at the financing of the real economy.”
The study pinpoints five new asset classes – energy and transport infrastructure loans, loans to SMEs, commercial real estate loans and export finance guaranteed loans – each worth about $100bn a year which it says will attract yield-hungry asset managers in future.
Head of institutional sales at fund manager M&G Bernard Abrahamsen said: “The universe is massive, but not everything that is up for refinancing will get refinanced, but there is plenty of opportunity.”
Around €4.6 trillion, or 80 per cent, of euro area corporate funding comes from banks, compared to €978bn from the market. In the US, the roles are reversed and around 80 per cent is financed by the market.
Allianz Global Investors director of infrastructure debt Adrian Jones said: “Banks’ proportionate share of long term lending is going to fall but there are significant barriers to entry for different products. For the smaller transactions there’s always going to be a role for banks.”