M&G holds £155m first close on speciality finance vehicle

London-based asset manager M&G Investments has launched its second Specialty Finance Fund with a first close at £155 million ($211 million; €186 million).

The vehicle now enters a 12-month fundraising period and is targeting a final close of £750 million with a hard-cap of £1 billion.

It will invest primarily in portfolios of performing residential mortgages and consumer loans from OECD countries with a bias towards Europe. M&G said that while consumer lending is dominated by retail banks, regulatory changes have encouraged banks to manage their balance sheets more efficiently. Asset managers are now stepping in to provide long-term capital to consumer borrowing on behalf of institutional investors.

The fund offers investors high single-digit returns and an attractive risk-return profile.

Jerome Henrion, head of speciality finance at M&G, said: “While this is a relatively new asset class for institutional investors, it is an established and well understood asset class with more than one billion historical data points. This allows us to understand how these assets will perform in any economic environment.

“The asset class has demonstrated its resilience through economic cycles and has provided stability and security.”

More stringent underwriting requirements from banks over the past decade means consumer lending has progressively become a stronger and safer asset class to invest in. With an estimated $28.5 trillion of consumer loan balance globally, M&G believes there is a significant opportunity for growth in this market.

Since forming its speciality finance team in 2017, M&G has invested almost £1 billion, referencing pools of more than £15 billion of residential mortgages and consumer debt. It acquires loans not just from banks but also from other non-bank lenders and corporates. As well as acquiring existing portfolios it will also back origination through partnerships, such as a long-standing agreement to originate mortgages with Finance Ireland.