Mobilising Private Capital, Special Purpose Vehicle

FINANCING THE REAL ECONOMY
Mobilising Private Capital, Special Purpose Vehicle
Circular Economy - Finance Workshop 23 June 2015
JUNE 2015
Membre du Groupe
AVERTISSEMENT : Les informations contenues dans ce document sont uniquement transmises à titre d'information. Ce document est strictement confidentiel et établi à l'intention exclusive de ses
destinataires, investisseurs professionnels au sens de la Directive MIFID et visés aux articles L. 533-16 du CMF et 423-27 du RG AMF. Toute utilisation ou diffusion non autorisée, en tout ou partie et de
quelque manière que ce soit, est interdite et passible de sanction. La Française, ACOFI et leurs filiales déclinent toute responsabilité en cas d'altération, déformation ou falsification dont ce document
pourrait faire l'objet.
FINANCING THE REAL ECONOMY
INTRODUCTION
• The disintermediation results from two concomitant shocks:
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The unprecedented (and sustained) compression of yields;
The simultaneous and far-reaching regulation of the banking
(Basel II) and insurance (Solvency II) industries.
• Renewed interest in direct or alternative financing of the economy by
institutionals and non-banking players.
• Versus a lowering banking offer for certain types of funding
• Alternative financing of the economy, directly or through regulated
loan funds,
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FINANCING THE REAL ECONOMY
DISINTERMEDIATION MACROECONOMIC AND PRUDENTIAL CONTEXT
Major change to the regulatory and prudential framework, post-2007/2008
financial crisis
Alignment of two "planets":
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Basel 3 régulation for Banks
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Solvency 2 régulation for insurance compagnies
FINANCING THE REAL ECONOMY
THE CONSTRAINT OF YIELD COMPRESSION
An unprecedented situation with painful consequences for institutionals
and professional investors
• A consequence of concerted action by central banks to stave off the threat of
inflation with the risks of asset inflation (the "bubble" phenomenon")
• Unprecedented levels
Recent decisions by the ECB (QE and OMT): over EUR 1,100bn of asset
purchases by September 2016!
Desperately low market interest rates - for the long term
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FINANCING THE REAL ECONOMY
THE CONSTRAINT OF YIELD COMPRESSION
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FINANCING THE REAL ECONOMY
THE CONSTRAINT OF YIELD COMPRESSION
HISTORICAL YIELDS
Yield - Feb 2015
Source : Allianz GI
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Historique 2000-2014
FINANCING THE REAL ECONOMY
DISRUPTION OF BUSINESS MODELS
Banks/Institutionals investors
"Originate to Distribute" vs "Invest to Lend"
• Securitisations back in investors' favour
• Parallel development of two approaches to securitisation
"Bank" securitisation is “originate to Distribute "
"Investor" securitisation is "invest to lend"
• Disruption of institutionals' asset allocation strategies
• Diversity of operating methods
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FINANCING THE REAL ECONOMY
FINANCING THE ECONOMY THE DISINTERMEDIATION
A regulated movement, encouraged by the public authorities
Two complementary approaches: "Disintermediation" (large transactions, B2B) and
"re-intermediation" (loan funds, Crowdfunding, EuroPP, etc.). The second is
preferred for unlisted entities and medium-size deals.
Trend facilitated by the clarification opening up of the regulations for alternative
lenders
• AIFM Directive,
• Legislative reform (insurance, SS etc.) between August 2013 and December
2014
• Knock-on effect on other institutions (AGIRC/ARRCO, ERAFP, FRR, etc.)
Regulated non-bank financing vs "shadow banking"
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FINANCING THE REAL ECONOMY
SPECIAL PURPOSE VEHICULE : GENERAL PRINCIPLES
Loan Funds “Fonds de Prêts à l’Economie”
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Liabilities of the loan funds
Low risk of a conflict of interests
French regulations specific to Funds “Fonds de Prêts à l’Economie”
European long term investment funds “ELTIF”
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Adopted 20/04/2015
To boost European long-term investments in the real economy, especially
infrastructure
Large range of eligible assets
Regular Income versus liquidity
FINANCING THE REAL ECONOMY
A RESPONSE TO INSTITUTIONALS' NEEDS
Loan funds constitute an asset class that meets the needs of institutionals in
the context of Solvency II.
• Investors' interest in alternative financing against a backdrop of compressed
yields: funds and mandates, direct intervention in balance sheets ...
• Attractiveness of the risk/return ratio of the "loan" asset class and their
inherent diversity, reflecting a complexity premium (lack of access to these new
risks) and an illiquidity premium.
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FINANCING THE REAL ECONOMY
A new type of "lender/borrower" relationship
The learning curve for working with alternative lenders
Borrowers (corporate/local authorities) must:
Understand/take into account their scores (FIBEN, etc.) and in the future, their
ratings
Deal consistently with their bank and non-bank creditors that refuse to be
subordinated de facto (guarantees, access to information)
Accept standardised workflows and contracts
The "new lenders" must learn:
To make themselves well known and
To indicate precisely the niches in which they operate (sector, size, "counter"
opening times, contractual and financial conditions, etc.).
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FINANCING THE REAL ECONOMY
ACOFI
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Asset manager regulated by the AMF, specialist AIFM manager
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25 experienced professionals from the asset management and investment banking
world
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Signatory of PRI Principles for Responsible Investment since 2015
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Two areas of expertise: (1) management of real assets and (2) direct loans to the
economy (funds or specialised mandates)
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Four finance and investment themes and 10 funds for 1,4 B€:
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Commercial real estate loan funds in Euro Zone) 4 Funds
Infrastructures (renewable energy and efficiency ) mainly France 1 Funds
Corporate
Public sector (local authorities and national health services)1 fund
Strategic partnership with Groupe La Française (Autumn 2014)