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Prestige AM: New rules to boost private lending

New international accounting rules that came into force on 1 January will impede banks' lending activity, making room for private lending market, according to Craig Reeves, founder of Prestige Funds.
Prestige AM: New rules to boost private lending

One of the requirements of the new International Financial Reporting Standard 9 (IFRS 9) forces banks to make higher advanced provisions for credit losses. “We expect this to lead to less loan-making activity in some segments,” Reeves said in a statement, citing small and medium enterprises.

The accounting changes, in combination with higher Tier 1 regulatory requirements and increased regulatory scrutiny, “will impede lending activity outside of traditional consumer and real estate ‘commoditised’ lending activity”, he added.

He sees reduced bank loans to SMEs as a plus for alternative lending. His firm’s Alternative Finance Fund, which specialises in direct private loans to UK-based companies, focuses on small companies in the agriculture sector and short-term invoice and cashflow finance. The firm said it has raised $1.5bn for its lending strategies since inception in 2007.

Reeves said he expected alternative direct lending to become more widely recognised among professional investors and to “attain new levels of maturity” in 2018, in part thanks to a strengthening outlook for the asset class.

While “rising interest rates may hurt high yield bonds… [they] should be positive for private debt,” he noted.

Reeves thinks that private lending deserves more recognition as an asset class. “Over the longer term, we expect it will rank second among non-traditional strategies, after long/short equity,” he said.

Three-year performance of the Prestige Alternative Finance Fund vs category average

Data: FE, returns in US dollars

Part of the Mark Allen Group.