LCM, which has previously managed money through one-off tie-ups with outside investors, ended up turning investors away in a €2 billion fundraising after it attracted interest worth €2.7 billion in all, according to chief executive Paul Burdell.
The strategy, LCM Credit Opportunities, targets books of loans that European banks have to shed from their balance sheet thanks to stricter regulations. Burdell says its current portfolio is split about 50-50 between performing loans and non-performing, or troubled loans where borrowers have become delinquent.
According to the European Banking Authority, 5.7% of bank loans in the EU are non-performing; a rate three times higher than in other jurisdictions. A troubled economic outlook in Europe – particularly in the UK where sterling has declined since the country’s EU referendum – is increasing the opportunity for funds investing in turnaround opportunities. At the same time, investor interest has soared as banks retreat from lending.
LCM, which sees part of its job as turning books of non-performing loans into performing loans, according to Burdell, is already putting its new cash to work.
The firm, which manages €13.4 billion, has been actively buying books of loans for its new investors since it received its first commitments in 2014. In January, it acquired a €320 million leasing portfolio from ING in the UK, during the summer it bought a €90 million performing loan book from BBVA in Italy, and in September it acquired a lending business in Ireland, Everyday Finance.
Burdell said his new investors, which include at least one big UK pension fund, could expect a return of between 11% and 13% a year, gross of fees, from their investment. The strategy’s investments to date have made 12.4% a year, net of fees, he added – ahead of target.