Given their stable banks and strong high-yield bond issuance, you could assume there isn’t much of a ‘lending gap’ in the Nordic countries. However, recent private debt expansions and initiatives suggest there is a place for institutional lending, even in what PDI hears is a tough area to crack. And banks could be at the forefront.
News of non-bank lending in the Nordics is thin on the ground, but more private debt firms are operating in the region, suggesting that the strategy is gaining traction.
This week it emerged that former Goldman Sachs partner Martin Wiwen-Nilsson will head a new office in London for Stockholm-based Brunswick Real Estate. The firm’s private debt arm, Leimdorfer Real Estate Capital, closed the first real estate debt fund in the region in March to little fanfare, raising capital from a number of well-known local institutions.
In the corporate landscape, Proventus Capital Partners is also active in Nordic lending and last year attracted international investment for the first time with its third private debt fund. The firm appears to be expanding its deal pipeline, sealing several recent deals in Ireland.
Other Stockholm-based firms to expand their teams and launch mid-market debt funds include EQT and Cordet. Finland-based Certior Capital also held a first close on the country’s first private credit fund of funds in May.
While fund managers and international investors seeking exposure to the Nordic loan market can take heart from these events, the difficulty remains in loan sourcing and primary deal flow. A bank source tells PDI that there has been a decline in the region’s loan volumes for this year, compared with 2014, reflecting a trend elsewhere in Europe.
In May, S&P also said there was a shortage of new issuers of debt, compared with 2014, probably reflecting a stand-off over valuations. There was around €60 billion in European leveraged finance issued to 30 April, compared with €150 billion for 2014.
M&A activity worldwide is up, however, with Deloitte saying in July that Europe is becoming the preferred destination for inbound M&A investment driven by North American companies. By contrast, European companies have been less active as acquirers.
At the coalface are the banks, concerned that private debt funds are seeking to disintermediate them. But there are signs that banks in the north are looking to match borrowers with institutional investors and lenders. One bank source in the Nordics says it is actively encouraging it, placing term loans with domestic institutional investors, and widening the net to catch international ones, too.
Pre-crisis, banks were able to sell loan risk to insurance companies and pension funds through securitisation, so they are aware of the potential rewards. And we are seeing them do it again with German bank Norddeutsche Landesbank illustrating the point this week, saying it was topping up its “Northvest” credit portfolio for institutional investors by €5.1 billion.
The key to direct lending in the Nordics truly flourishing will be how banks, borrowers and institutional investors work together. It may be only a matter of time before they come up with more solutions, leading to more private institutional lending. But with Nordic banks stronger than their southern European counterparts, the result could be so ahead of its time that they end up disintermediating private debt funds altogether.
While it makes for an interesting thought, we’re not as sure this will happen. As seen since the financial crisis, the assessment and management of loans will remain all important.