“We’ve reached an agreement that brings liquidity which isn’t currently available into the market – AIG, Hermes and M&G do not currently participate in the UK mid-market leveraged finance. They are brand new,” he said. “Doing more deals is the key issue here. We have a fair share of transactions in this market, but like any business we would like to do more.” Typically the funds will go to private equity-backed firms with earnings of more than £10m per year and plans for substantial growth, although firms with other owners could also become involved. Traditionally those firms’ owners would look for finance from several lenders individually, piecing together a big loan bit by bit. RBS hopes that it can offer a shortcut to the borrowers, by offering a package upfront put together by the bank and the institutional investors behind closed doors. The institutions funding the loans hope it will give them better, safer and more straightforward access to a market in which they have not previously participated, allowing them to build scale relatively rapidly. “European direct lending is a growing, attractive market, offering secure yield and resilient loan pricing,” said Hermes’ Harriet Steel. “Our team has extensive experience in origination, credit research, loan structuring and fund management, and our partnership with RBS offers unique and enhanced access to this asset class.” The loans will range in size from £25m to £100m, with a maturity of five to seven years. Mr Roach expects the group could fund 75 to 80 deals next year, up from the 65 RBS expects to have participated in by the end of 2015.
M&G Investments (RBS) has partnered with asset managers, Hermes Investment Management, The Royal Bank of Scotland, and AIG Asset Management, in an effort to expad a program of lending to medium-sized businesses backed by private equity companies. This will provide a way for RBS to spread risk of lending, while the asset managers benefit from an established route into the market and an existing client base. This move comes as increasingly 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 books following the financial crisis.