Royal Bank of Scotland has struck a deal with three global asset managers allowing them to lend alongside the bank to medium-sized businesses backed by private equity companies.
Hermes Investment Management, M&G Investments and AIG Asset Management in Europe have signed an agreement to co-fund loans of up to £100m, of which £15m-£30m will be provided by the state-backed bank.
The partnership provides a way for RBS to spread the risk of lending, while the fund groups benefit from an established route into the market and an existing client base.
It comes as more asset managers are lending directly to companies, in effect becoming “shadow banks”, after traditional lenders have been forced to scale back and shrink their balance sheets after the financial crisis.
In another move announced on Monday, RBS offloaded £1.6bn of Irish real estate loans to an affiliate of private equity group Lone Star Funds, and a subsidiary of Cairn Homes, for £360m.
The disposal reduces RBS’s riskier assets by about £700m and is part of the lender’s restructuring plan to shed risky assets and bolster its capital strength.
RBS expects the sale to generate a gain of about £245m after costs, which will be recognised in the fourth quarter.
The tie-up between the bank and the asset managers provides a single point of access for business customers borrowing through RBS, rather than having to simultaneously negotiate with four or five different parties for smaller sums.
Each transaction will be originated and co-ordinated by RBS, although the three fund managers will undertake their own credit analysis.
RBS has already completed three deals through the agreement, amounting to £250m for three UK companies specialising in IT software, laundry services and restaurant sectors.
Richard Roach, head of financial sponsors at RBS, said the agreement “makes borrowing on this scale simpler” for customers and enables the group to create “competitive lending packages”.
Geoff Cornell, deputy chief investment officer of AIG, said the partnership with RBS enabled it to gain direct exposure to a range of borrowers in a cost-effective way, helping to diversify its own global portfolio.
For Hermes, the move is part of a plan to develop its private debt offering. Harriet Steel, global head of business development at Hermes, said: “European direct lending is a growing, attractive market, offering secure yield and resilient loan pricing.”
James Pearce, head of direct lending at M&G Investments, said banks and asset managers were “now working closely in this way” following the financial crisis, to ensure that UK companies have access to sources of funding.
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