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Resurgence in traditional bank lending a key challenge facing private debt funds

21 March 2018

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  • 24% of professional investors see the traditional banks as biggest challenge facing private debt funds
  • 64% cite banks’ balance sheet strength as their biggest asset

A resurgence in traditional bank lending is the biggest challenge facing the direct lending market in the coming years, according to one in four (24%) professional investors.

A study commissioned by Intertrust, a leading global provider of high-value trust, corporate and fund services reveals that despite the rapid rise of private debt funds, professional investors believe that traditional banks will continue to be a dominant force in lending.

Balance sheet strength and competitive borrowing rates were cited as the biggest long-term advantages held by traditional banks over private debt managers, according to 64% and 62% of professional investors respectively.

Other key advantages held by the banks over private debt funds were monitoring resources (55%), loan origination infrastructure (48%), experienced teams (42%) and an ability to adapt to changes in the debt cycle (37%).

Regulation, fee pressure and fund raising were identified as the three biggest challenges facing the direct lending market, by 61%, 48% and 30% of investors respectively.

Paul Lawrence, Global Head of Fund Services at Intertrust says:

“Private debt funds may be booming but outside the US, the demise of traditional banks in company lending has been greatly exaggerated.  In some markets such as Europe banks still occupy a dominant position and with further rate rises expected it’s likely that more banks will decide to put their large balance sheets to work and offer relatively competitive terms.”

“Many borrowers will be looking to refinance leveraged loans and high yield bonds as they reach maturity over the next few years. This creates a strong opportunity for the banks, particularly if they were to supplement their traditional balance sheet lending by creating fund structures that could enable them to compete more directly with the private debt players.”

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