In Germany, around 35 pure corporate loan funds are active, which had a total volume of approximately US$ 17.5 billion in 2017 (source: Preqin) and provide growth and acquisition financing for German SMEs. These companies are predominantly in the upper sub-investment grade range and predominantly have EBITDA between EUR 5 million and EUR 25 million and correspondingly turn-over of EUR 25 million to EUR 75 million. The size of the loans provided by the debt funds show a large spread of 5 to 100 million euros.
Matthias Erb, member of the BAI Managing Board and responsible for Alternative Markets, explained: "German SMEs offer great potential for the further growth of debt funds in Germany. There are thousands of companies that are eligible for financing through debt funds and are ideal companions for growth and takeover financing for the debt funds. Debt funds can play out their advantages especially with longer maturities, challenging business developments and in the sub-investment-grade segment of the German SME market."
The growth of debt funds is triggered and accompanied by demand from institutional investors. In Germany, this demand comes not only from large, global insurance groups, but also from pension funds, pension schemes and many other, smaller investors. According to the study, the main reason for investing in debt funds is the good risk-return ratio, followed by diversification and use as a bond/pension replacement due to stable regular income.
Andreas Kalusche, member of BAI's Managing Board and also responsible for Alternative Markets, commented as follows: "All investors in Germany have long since included the debt fund market for corporate loans as an essential component of their portfolio decisions and regard it as an alternative to conventional fixed-income investments. As corporate private debt in Germany also offers adequate returns and collateral for investors, this market will continue to develop positively on the demand side".
The funds operating in Germany are predominantly located in Luxembourg and so far only smaller credit funds active in the areas of restructuring (distressed debt) and special situations are based in Germany.
Frank Dornseifer, Managing Director of BAI, explained: "Due to the European focus of most debt funds, the choice of Luxembourg as a location is not surprising. Although the survey does not criticise German regulation in principle, well coordinated and pragmatic regulation, as well as already existing structures often give rise to the choice of Luxembourg as a location. We hope, however, that the momentum will continue for small funds, some of which are already established in Germany after all. It is precisely here that we want to act as an association and remove existing hurdles."
Overall, the BAI believes that Corporate Private Debt is on the advance in Germany. This market will gain in breadth and depth in the future. Due to the German economic structure and the (still) high density of banks, this development will differ from that in the USA, for example. Growth in Germany will not be continuous, but will continue to fluctuate as before and extend beyond the existing focus areas of acquisition and growth financing. As a result, debt funds are an important enrichment for the financial centre and expand the financing opportunities of German SMEs to complement banks and other market-based forms of financing that are currently developing.
Together with a summary (in English), the study "Corporate Loan Financing by Non-Banks in Germany" can be downloaded from BAI's homepage. There you will also find further information on the subject of private debt (particularly under the heading "Main topics").
Download the Press Release here
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