Schemes eye private placement deals

According to data from Thomson Reuters, these types of deals – where investors loan money directly to companies bypassing banks – reached $27.4bn (£17.7bn) worldwide in the first half of the year.

Pension schemes, as well as insurance companies, are increasingly stepping in to lend the money where the banks are no longer able to.

Managers selling those types of loans to institutional investors said the pipeline for the rest of the year sees strong and increasing interest by UK schemes.

Bernard Abrahamsen (pictured), director of fixed income at M&G, said if investors lend money with durations of five years or longer, as it is the case with private placements, corporates are willing to pay a premium.

“This is due not only to the illiquidity of the deal but also that some of those companies will be sub-investment grade. The result is that spreads available in this market are more attractive to investors than in public debt markets,” he added.

The key requirement for a participant in this market is a long investment horizon and willingness to invest in illiquid assets.

Chris Redmond, senior investment consultant at Towers Watson, said given the current situation of banks, there will be an ongoing requirement for alternative sources of loans to the private sector.

The trend on private placements is developing against a background of UK schemes’ increasing interest in the wide spectrum of loans, including leveraged loans.

According to a recent report by Alcentra, the secondary market prices of loans have recovered following the unwinding of excessive leverage accumulated in the pre-crisis years.

The report said: “The forthcoming vintage of loan origination is likely to provide more favourable return for the lowest risk that has been seen in the market for some time.”