Funding the real economy
By Jack Inglis, CEO, AIMA
Published: 30 June 2015
The theme of this edition of the AIMA Journal is the “new lenders” including hedge fund firms who are revolutionising modern finance. The centrepiece is a summary of our new paper, ‘Financing the economy’, which we published in May 2015.
The paper states that private debt funds such as hedge funds manage around $440 billion in assets, with some $64 billion of new capital allocated to the sector in 2014.[1] This new capital has flowed in to fill a void left by traditional banks, who of course have reduced lending since the financial crisis.
The most popular borrowers of non-bank private debt, according to our paper, are small and medium-sized enterprises (SMEs). Such businesses are typically too small to raise capital through the public corporate bond market and have been finding it difficult to borrow from the traditional banking sector since the crisis. Refinancing existing loans, pursuing acquisition and expansion plans and improving working capital are all common uses of such private finance.
A number of case studies are published with the paper, including examples of private debt funds that have supported sectors as diverse as social housing, health, renewable energy and shipbuilding.
It builds on our previous research in highlighting the ‘real economy’ impact of hedge funds. This is a key area of focus for us – demonstrating the tangible benefits that hedge funds can bring to markets, investors and society at large, and underlining that our industry is connected to the ‘real world’.
Our paper last year on the activities of hedge funds and other participants in the capital markets showed a clear correlation between capital market depth and economic growth. The prospects for a capital markets union is something we of course support. In May, we submitted a response to the European Commission green paper on Building a Capital Markets Union. Our submission focused in particular on improving the securitisation framework and openings for direct lending.
We are keen that asset management activity in the private credit space is well understood - lest unnecessary or inappropriate controls are introduced to curb it. We had the opportunity to discuss this in more detail last month when my colleague Jiri Krol and I, joined by several manager representatives, travelled to Brussels for a very useful and constructive meeting with Lord Hill, the European Commissioner for Financial Stability, Financial Services and the Capital Markets Union. Meanwhile, credit opportunities were a recurring theme at the recent annual SALT conference in Las Vegas.
Finally, I am very much looking forward to the post-summer period and AIMA’s 25th Anniversary Dinner, which will precede our Annual Conference in London. This will be in aid of the NSPCC (National Society for the Prevention of Cruelty to Children) and channelled through the charity Hedge Funds Care. We will take the opportunity to look back at the lessons learned over the past 25 years and look to the future with the optimism of a fully grown up industry. Please save the date for this very worthwhile cause: 23rd September 2015. The Annual Conference and 25th Anniversary AGM is on 24th September, both at Guildhall in the City of London. I look forward to catching up with many of you there.
