[SAN FRANCISCO] There is significant money to be made in Europe by investing and lending where local banks cannot, two prominent private fund managers told attendees of a US hedge fund conference on Friday.
"The most attractive opportunity in this environment is to step in where the banks are least able to lend," Stuart Fiertz, co-founder and president of Cheyne Capital Management, said in a panel discussion at the Alpha Hedge West conference in San Francisco.
London-based Cheyne managed about US$14.8 billion in so-called regulatory assets as of May 31, which includes leverage. Its offerings include hedge funds and other private funds that bet on real estate, corporate bonds, stocks and more.
"We think there's tremendous opportunity in Europe," added Bruce Richards, chief executive officer and co-managing partner of US$12.7 billion Marathon Asset Management.
The executives, speaking side by side in front of an audience of pension trustees and fellow hedge fund managers, were particularly bullish on European real estate.
After much anticipation, European banks were finally starting to shed property-related nonperforming loans, Mr Fiertz and Mr Richards said. Those asset sales come as banks have generally pulled back from extending riskier real estate and commercial loans.
Both moves, they said, create opportunities for private lenders such as Cheyne and Marathon, which use private credit funds that lock up investor capital for several years as opposed to their hedge funds, which offer looser liquidity terms.
Mr Fiertz said European banks have pulled back from real estate lending faster than their loans to companies, creating more relative opportunity.
Some so-called value-add loans up to US$100 million to improve properties were yielding interest rates of about 10 percent plus fees, he said.
Instead of making real estate loans, Mr Richards said New York-based Marathon was buying nonperforming loans directly from banks, sometimes at a 50 per cent discount from face value.
Marathon can then take over and manage the underlying properties and receive income from existing commercial tenants.
With cheap financing to make the purchase, the money to be made is "very, very encouraging," Mr Richards said.
"If you can buy at 7, 8 per cent cash flowing, hard assets with financing rates that are (ultra low), that's the biggest spread anywhere in the world," he added.
"You can't even go to Brazil and find a spread that big."