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Consumer credit: a new frontier

Consumer credit: a new frontier

Emma Cusworth
Friday 2nd June 2017

So far the consumer loans market has been largely untapped by institutional investors, but is that about  to change? Emma Cusworth finds out.

Consumer credit: a new frontier

"In the credit world, anything that brings diversification to portfolios is welcome. This is a well-developed sector, but the instruments keep changing."

Himanshu Chaturvedi, Cambridge Associates

Institutional investors are not newcomers to the role of disintermediating banks. The hunt for yield has pushed many to explore new opportunities where providing services previously dominated by banks can offer better margins for borrowers and investors alike. As the pressure on banks’ balance sheets continues and technological development races ahead, institutions are finding more and more ways to profit by stepping into the lending market.

Take direct lending, for example, where institutional investors have increasingly found returns by replacing banks or private equity firms as providers of corporate debt. According to data from Preqin, European and North American direct lending funds raised just shy of $150bn (£121bn) between 2006 and May 2016, with European funds overtaking their US counterparts for the first time in 2015, raising $18.8bn that year alone compared to $17.1bn for the US. In fact, direct lending may already have passed its heyday as the amount of money chasing the opportunity leads to a fall in returns and a pick-up in risk.

So what’s next? Where is the new frontier when profiting from bank disintermediation?

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