A $5.5 billion hedge fund is stepping in where banks fear to tread -- and making a killing

A $US5.5 billion hedge fund is making a killing by stepping in to an area of business that European banks are pulling out of.

Chenavari Investment Managers, a London-based hedge fund firm, says it is one of the main players buying loans from European banks.

Those loans fund European businesses. After the financial crisis, European banks were forced to downsize their balance sheets and reduce lending. That has created a gap for asset managers to exploit.

With that in mind, Chenavari launched a private credit European bank deleveraging fund in 2011. The annualized performance of the fund stands at 11% net since its inception, with no down year. The firm has $US1.8 billion in closed-ended private credit illiquid funds.

“We currently think that the best opportunities arise because of the changing European bank business model,” Chenavari’s Loic Fery, the firm’s CEO, said in an email. “
What happened in the US twenty five years ago with the development of specialty finance boutiques on credit asset classes in each state is now happening in Europe. European countries are transitioning from a bank-financed to an alternative lenders financed economy.”

Fery added that his hedge fund is “acquiring private debt portfolios held on banks’ balance sheets and also originating new loans in sectors that banks tend to retrench from.”

Fery told Business Insider:

“We also see strong value in the less liquid part of the European credit market, either through bank portfolio acquisitions or direct private debt new origination. When it comes to illiquid credit strategies, we are convinced that we will witness a continued flow of attractive investment opportunities deriving from European banks deleveraging, regulatory changes and central bank distortions. Retreat of traditional lenders and market-makers is obvious in various specialty finance markets (real estate debt, trade finance, consumer finance, leasing), leaving a room of choice for alternative lenders like Chenavari.”

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