The asset management industry is about to experience another shake-up, as the investment universe expands to include new asset classes that involve direct loans to the economy rather than financial securities. … This report provides an insight into a new world of unlisted assets. Just as there is a market for private equity (unlisted shares), a market for private bonds and loans is developing as a result of the current large-scale disintermediation process. The report is intended to be instructive and seeks to explain this market using simple language. The editorial covers issues arising from macroeconomic disintermediation in the US and Europe, but also takes a microeconomic view by looking at the asset management industry in Europe, the US and Japan.
In this report, we look at five markets through which investors can lend directly to the economy, each corresponding to a new asset class:
1) Loans guaranteed by export finance agencies
2) Commercial real-estate loans
3) Loans for financing energy-related projects
4) Loans for financing transport-related projects
5) Loans to SMEs and intermediate-sized enterprises (ETIs)
Rodney Durham stopped working in 1991, declared bankruptcy and lives on Social Security. Nonetheless, Wells Fargo lent him $15,197 to buy a used Mitsubishi sedan. ... “I am not sure how I got the loan,” Mr. Durham, age 60, said. ... Mr. Durham’s application said that he made $35,000 as a technician at Lourdes Hospital in Binghamton, N.Y., according to a copy of the loan document. But he says he told the dealer he hadn’t worked at the hospital for more than three decades. Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car. ... This is the face of the new subprime boom. Mr. Durham is one of millions of Americans with shoddy credit who are easily obtaining auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. The loans often come with terms that take advantage of the most desperate, least financially sophisticated customers. ... Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640. ... While losses from soured car loans would be far less than those on subprime mortgages, the red ink could still deal a blow to the banks not long after they recovered from the housing bust. Losses from auto loans might also cause the banks to further retrench from making other loans vital to the economic recovery, like those to small business and would-be homeowners. ... In another sign of trouble ahead, repossessions, while still relatively low, increased nearly 78 percent to an estimated 388,000 cars in the first three months of the year from the same period a year earlier, according to the latest data provided by Experian. The number of borrowers who are more than 60 days late on their car payments also jumped in 22 states during that period.
In 1969, Neil Armstrong walked on the moon, Richard Nixon became president of the U.S., and 400,000 hippies descended on a sleepy New York farm near Woodstock. On the other side of the Atlantic, on a winter’s day in London, a mustachioed Greek banker named Minos Zombanakis was taking his own small step into history. He’d hit upon a novel way to lend large amounts of money to companies and countries that wanted to borrow dollars but would rather avoid the rigors of U.S. financial regulation. ... The Eurodollar market, as the vast pool of U.S. dollars held by banks outside the States is known, was already well developed, but Zombanakis had spotted a gap: the supply of large loans to borrowers looking for an alternate source of capital to the bond markets. He persuaded his bosses in New York to give him $5 million to set up a branch in London.