The head of the Irish Funds Industry Association (IFIA), Pat Lardner, has talked up the appeal of credit funds in Europe to Asian investors on a recent visit to the region.
Lardner, chief executive of IFIA, spoke to AsianInvestor as he passed through Hong Kong to promote a new regulation from the Central Bank of Ireland (CBI) allowing investment managers to participate in loan origination.
He noted that as banks had reined in lending activities to meet more stringent capital constraints imposed by regulators in the wake of the 2008/09 global financial crisis, demand for private debt funds had swelled.
As of May this year, a total of $33 billion had been raised in private debt funds in Europe, according to a report by ratings agency Moody’s published in July.
Speaking about the apparent proliferation of credit funds in the UK and Europe, Lardner explained that while 80% of financial intermediation in the US happens via the capital market, in the UK 80% goes through the banking system.
“With the constraint and reduction in lending by banks into the real economy, this opens up a significant opportunity for direct intermediation by investment funds into the real economy by originating loans via a regulated fund structure with clear protections for investors under AIFMD [Alternative Investment Fund Managers Directive],” he said.
“Fund managers with credit expertise will be able to structure investment funds, subject to the Central Bank of Ireland rules, which can go pick up economic exposure and the associated yield that goes with it.”
When asked about interest from Asian investors towards credit funds in Europe, Lardner said he was not aware of any investment from Asia at this stage, saying it was a new area for CBI.
But he added: “The exciting thing is that there is nothing to say that a loan origination fund, based in Ireland and operating under AIFMD, couldn’t originate Asian loans as fund investments.
“The definite sense we get is managers are looking to apply credit expertise and meet investor demand in search of yield. It would be our hope to see significant growth in this.”
He noted there was no requirement from CBI that money raised should be deployed into European loans. “If there was the ability to introduce funds to lend into entities or projects that are based in various parts of the world, subject to the CBI rules, it opens a range of opportunities for people to deliver [loan origination] in a regulated format.”
As a funds domicile, Ireland is the second largest in Europe with a total of €1.16 trillion ($1.5 trillion) in assets under management, according to Cerulli Associates data. The largest by far is Luxembourg at €2.6 trillion. London is in third place with €1.1 trillion.