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Financial News: Credit fund targets €1.5 billion amid bank deleveraging


London – Credit specialist LCM Partners is aiming to raise €1.5 billion for a new European credit opportunities fund that aims to take advantage of the ongoing disposal of non-core assets by the region’s banks.

The firm, which has advised the European Central Bank on its effort to improve the transparency of Europe’s asset-backed securities market since 2009, held a first close of the fund this summer.

The LCM Credit Opportunities Fund secured a cornerstone commitment of €350 million from a large European pension fund, with the potential for a further €150 million investment.

It aims to raise another €1 billion from other investors.

The fund will invest in a range of European non-core and non-performing mortgages, as well as consumer and commercial loans. It is targeting gross returns of 12% to 14% over five to seven years, according to marketing materials seen by Financial News.

The new fund is the largest the firm has raised to date. It raised a combined €420 million in 2010 and 2012 funds that were joint ventures with another fixed income manager.

LCM chief executive Paul Burdell said the pace of deleveraging by European banks is gaining steam. He said: “What’s interesting is that we are starting to see much more than business as usual [non-performing loan] sales in the form of larger and more strategic non-core asset sales by banks.

Burdell added that those sales include performing loans in markets or product lines that banks have exited.

The credit fund’s heaviest exposure will be to the UK, but its portfolio will also include investments in markets such as Germany, Spain and Italy, with a small portion outside Europe.
Burdell said the firm’s edge comes from an in-house data warehouse that helps price a wide range of assets and portfolios.

LCM has a contract to advise the ECB through 2017 on its attempts to rejuvenate the region’s ABS market, after the volume of new deals plummeted after the financial crisis. The firm helped launch the European DataWarehouse, which is owned by a number of market participants including large banks in the region, and helps standardise ABS issuance data.

European ABS issuance has shown signs of a pick up this year reaching $26.3 billion year-to-date — the highest level for the period since 2008, according to Dealogic. The size of deals has also grown.

The US Securities and Exchange Commission last week approved rules aimed at bolstering the amount of information available to ABS investors on the quality of assets.