Hedge funds and other non-bank credit investment groups are pushing into what traditionally used to be banks’ territory, Banknet360 reports.
For the first time in decades, hedge funds and other non-banks hold slightly more than 50 percent of all European leveraged lending — lending to companies with less-than-perfect credit.
As recently as 2005, bank lending represented three-quarters of the market.
In March, however, banks’ share of European leveraged lending fell to 49.8 percent. Recently, a wave of U.S. hedge funds and credit portfolio investors established operations in London, while European banks have become eager to sell loans rated below investment grade because new rules make it expensive for them to keep such loans on their books.
The shift in leveraged lending raise questions about the ability of policymakers to monitor borrowing trends, given that hedge funds are generally unregulated.