ESMA supports EU framework for lending by investment funds

Written by Paola Barozza

A common EU framework could encourage investment funds to offer loans to borrowers while controlling systemic risk, the European Securities and Markets Authority (ESMA).ESMA published its ‘opinion’ addressed to the European Parliament, Council and Commission as part of its work on the Capital Markets Union (CMU).

Loans from investment funds to borrowers such as small and medium enterprises could provide an alternative source of finance for the market, ESMA said. Known as ‘loan origination’, this is encouraged under the CMU, it said.

Several countries including Germany, Ireland, Spain, Italy and Malta have set up their own frameworks for alternative investment funds based in their jurisdictions, all with different requirements, and France is in the process of consulting on changes to its regulation to cover loan origination by funds. A common EU approach would create a more level playing field for funds, reduce ‘regulatory arbitrage’, where funds choose the most favourable countries, and generally encourage lending, ESMA said.

Loan origination is currently only possible for alternative investment funds (AIFs), ESMA noted Other funds, known as UCITS, or undertakings for the collective investment in transferable securities, are prohibited from giving loans or acting as a guarantor.

In its work on a framework, the Commission “should look at the existing national approaches and regimes, as well as consider the exemptions for a number of fund types which are currently in place in member states, such as for private equity funds, venture capital funds, or hedge funds,” ESMA said.

The Commission should also consider introducing authorisation for funds and their managers, allowing national authorities to assess their capabilities and monitor any impact on systemic risk, ESMA said. This will help to protect the interests of both borrowers and investors, it said.

Whether it includes authorisation or not, the framework should make sure that national competent authorities have powers to monitor, supervise and enforce the requirements set for managers and their funds, it said.
Fund management expert Daniel Greenaway of Pinsent Masons, the law firm behind said: “The initiative to harmonise the regulatory regime for debt funds should be welcomed as the number of funds in the space continues to grow.  This increased focus on the benefits of new alternative lenders entering the market should also lead to a focus on the harmonisation of relevant tax laws so that these funds can be established and operated more efficiently across all EU jurisdictions.”

ESMA was established in 2011 to protect investors and promote stable, well-functioning financial markets in the EU.

‘Generation Rent’ drives appetite for UK residential investment

Written by Paola Barozza

Investment opportunities in UK residential property are expanding as fewer people can afford to buy their own homes and the number of renters increases.

Standard & Poor’s (S&P), a credit ratings agency, says that growing demand for rented housing together with new government incentive schemes are main drivers behind higher institutional investor appetite for the sector, which potentially needs about £30 billion (€38 billion) of investment.

S&P – which has noted that homeownership in the UK declined from 70% in 2005 to about 64% today – says that investment managers such as Venn, M3 Capital Partners, Prudential Financial, M&G, and Legal & General have allocated large sums to the build-to-let market over the past two years.

A recent Internos Global Investors survey of 62 investment organisations found the British private rented sector is “by far the top investing preference” among various real estate options, S&P said.

In its ‘Generation Rent’ report, S&P said investors may use project finance as a vehicle to enter the sector on a long-term basis, that construction risk is no longer a major deterrent, and investors are actively looking to be involved from the procurement stage.

S&P economists forecast nominal house prices will rise 5% year on year in 2016 and 3% in 2017. This follows sharp rises of 10% in 2014 and 7% in 2015 on the back of the UK economic recovery.

Residential housing is not historically a major investment area for UK pension funds