European credit manager ECM is seeking to raise up to 500 million euros for a fund to invest in the loans and bonds of highly-leveraged companies, aiming to fill a gap left by a drop in lending to such borrowers by banks and specialist funds.
The fund will invest in both secured loans and high yield bonds in non-peripheral European countries issued by highly-leveraged, non-investment grade rated companies and private equity backed borrowers, ECM, a unit of U.S. bank Wells Fargo, said on Wednesday.
The European leveraged loan market is under pressure to replace billions of euros of cash falling away as collateralized loan obligation (CLO) funds in Europe - which were traditionally the main provider of credit during the 2006 and 2007 LBO boom years - are coming to the end of their lives.
Unlike in the United States, no new CLOs have been created in Europe and banks are under pressure to cut their balance sheets due to regulatory requirements.
Investors believe that funds that allow for the investment in loans and bonds together will be a new strategy for European fund managers to help diversify exposure to an asset class that yields over 5 percent.
"We believe that a fund combining senior secured loans and bonds will provide investors with excellent exposure to the corporate sub-investment grade credit market," said Matthew Craston, head of alternative investments at ECM.
The fund will focus on lending to companies in northern non-peripheral European countries and provide loans in the most secured portion of debt, where recovery rates have historically been highest in Europe, ECM said.
Torben Ronberg will be lead portfolio manager of the fund, with Andre Mazzella, ECM's senior high yield portfolio manager, acting as co-lead.
ECM has over $9.5 billion of assets under management and has invested in high yield bonds since it was founded in 1999, and in senior secured loans since 2004, both in separate strategies and in multi-asset class credit funds.
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