As the likelihood that the eurozone will collapse recedes, Australian institutional investors are becoming increasingly interested in private European debt markets, according to the Intermediate Capital Group (ICG).

The FTSE 250-listed ICG provides debt and credit to the private markets with a focus on mezzanine debt. The firm, which has assets under management of around $15 billion, set up in Australia about six months ago and has received allocations from several institutions for investment in sub-investment-grade European debt, usually in the form of loans to private companies.

Jeff Boswell, ICG’s London-based senior portfolio manager, was in Australia last week and told I&T News that while ICG has an Asian fund that invested in Australian opportunities – such as leveraged buyouts and private equity – Australian investors, by contrast, were much more interested in European opportunities.

“We’ve just closed our Europe 5 Fund and it’s one of the most international funds we’ve ever had in terms of the investors,” said Boswell.

“We have sovereign wealth funds and large international pension funds all interested in Europe because they are looking for yield and they believe that the tail risk there has been allayed.

“Investors are looking at it and thinking about how they can access it, and there is a big wave of money going into Europe right now.”

Boswell said that with the retreat of the banks and collateralised loan-obligations vehicles a space exists for institutional investors to enter Europe’s lending markets, often in syndicates.

“Some really good companies are not able to get funding due to their exposure to Spain, for example, and we believe there are a lot of great opportunities there,” he said.

Boswell said that the current average margin on European loans was around 550 basis points over for senior debt, and with current market default rates, lenders to this sector might “lose 90 cents out of the dollar over a year”.

“So you put that loss in the context of 550 basis points, then you are getting pretty well compensated for the risk,” he said.

Leave a comment