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Fitch: High Growth in European Loan Funds Reflects Shifting Investor Base
October 12, 2016 / 2:22 PM / a year ago

Fitch: High Growth in European Loan Funds Reflects Shifting Investor Base

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: European Leveraged Loan Funds here LONDON/PARIS, October 12 (Fitch) Fitch Ratings estimates that open-ended Europe-domiciled loan funds have had strong average annual growth of 50%-60%, albeit from a low base, over the last five years. In a report published today Fitch estimates total assets of just EUR40bn across all European open-ended funds at end-June 2016, with most investing in US and European leveraged loans rather than having a pure European focus. Loan fund assets in the US are substantially greater than in Europe, at around USD110bn as of end-June 2016. This is a function of size - the US loan market is roughly four times larger than Europe's - and also because loans are not eligible assets under Europe's UCITS fund regulation, which precludes retail investment. Loan funds in the US are actively sold to retail as well as institutional investors. Fitch estimates that collectively the share of new issuance acquired by loan funds and separately managed accounts in Europe is now only marginally smaller than that of CLOs. This makes funds and mandates collectively a significant institutional loan investor group and reflects a shift in the investor base in the European loan market away from banks to institutional investors and among the institutional investors to funds and mandates along with the CLOs. European CLOs and loan funds broadly invest in the same sectors in roughly the same proportions. However, some important differences exist. European loan funds can, and do, have greater maximum issuer and industry exposures. They are also more able to invest in non-base-currency exposures, which may support diversification while introducing foreign-exchange risk. European CLOs primarily invest in euro-denominated leveraged loans. Lastly, they can also diversify into other asset classes such as infrastructure or commercial property debt or run larger bond exposures than CLOs. Redemption terms on open-ended European loan funds are typically longer than for fixed-income funds. Most loan funds offer monthly liquidity with a notice period, whereas most bond funds offer daily liquidity with T+3 settlement. This difference recognises that loans can be less liquid than bonds, but it is far from certain that funds could sustain liquidity in the event of severe market stress, especially given potentially long loan settlement times in Europe.] The report, 'European Leveraged Loan Funds: High Growth Reflects Shifting Loan Investor Base', is available on www.fitchratings.com or by clicking the link above. Contact: Alastair Sewell, CFA Senior Director +44 20 3530 1147 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Manuel Arrive, CFA Senior Director +33 1 44 29 91 77 Media Relations: Rose Millburn, London, Tel: +44 203 530 1741, Email: rose.millburn@fitchratings.com. Additional information is available on www.fitchratings.com Related Research European High-Yield Insight - August 2016 here Little Differentiation in Euro Bond Fund Liquidity Provision: Daily Dealing Standard Even for Less Liquid Asset Classes here The Annual Manual (U.S. Leveraged Finance Primer) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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