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Financial News: Pension Funds take on Amazon with debt specialist LCM

29/01/2018

As banks retreat, investors are moving into consumer and small-business financing territory also being eyed up by Big Tech

Some of the world’s biggest pension funds are teaming up with specialist debt fund manager LCM, to finance the customer-lending operations of car-makers, leasing firms and manufacturers, as institutional investors battle with Big Tech to bridge the credit gap left by the banks.

Global financial regulators have tightened banks’ capital regulations substantially since the financial crisis, leading them to exit some lending and financing businesses. This has created opportunities for investors, with US alternatives managers like Blackstone and Apollo leading the charge.

Paul Burdell, chief executive of LCM, said that big tech firms have also been increasingly moving into the financing of small businesses, such as Amazon extending its lending to companies that use its online marketplace. He said: “The large corporates are facing increasing competition for this lending, and we can be their secret weapon.”

LCM, which has so far specialised in acquiring and managing loan-books directly from banks, is moving into direct financing deals with companies for the first time with a new fund known as Strategic Origination and Lending Opportunities, or SOLO.

Burdell said LCM, which raised €2.7bn from investors for its first fund and is responsible for managing loans worth around €26bn, was not necessarily looking to disrupt banks’ financing businesses with the new fund.

He said “there will be occasions” where banks have capital-intensive financing businesses they no longer wish to manage, and LCM can step in. But he added: “We will complement the banks as well, and be a tool that credit originators can use.”

LCM  has raised €700m for the new strategy so far from three “cornerstone” investors, including two of Europe’s biggest pension funds. It wants to raise €1.5bn for the fund in all, and will give its existing clients in its other funds first refusal.

It is also planning to raise another fund, which will invest in acquiring portfolios of performing and non-performing loans from banks. This will formally launch in the latter half of this year, but LCM is allowing the firm’s current investors to “reserve places” in the new fund, and Burdell said that as a result, he is confident of raising at least €1.2bn and possibly as much as €3.5bn.

LCM’s existing investors include the US state retirement funds for Florida, Arizona and Illinois, as well as Swedish state fund AP4, according to the pensions’ accounts and public disclosures.

Bank collapses in Europe have also provided opportunities: Blackstone acquired a €30bn real-estate loan portfolio from Banco Popular last August.

In Europe, LCM has become a substantial homegrown competitor to such private equity and distressed debt firms. It raised €2.7bn — substantially over target — for its last fund in 2016, which was also aimed at acquiring banks’ loan books.

LCM was nominated for Financial News‘ Boutique Asset Manager of the Year Award in 2017. It came second in the voting, behind the much higher-profile equity manager Fundsmith, led by former broker Terry Smith.