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Audience

European Leveraged Finance

European leveraged loans are increasingly popular with pension funds and insurers globally due to their potential to offer attractive, stable income, security over assets and low correlation with other asset classes.

For Asia-based institutional investors, European loans can offer exposure to a diverse range of issuers with limited crossover to other markets and bring diversification benefits to a global loan allocation.

We consider leveraged loans an attractive starting point for investment in higher-yielding European credit.

What are leveraged loans?

Leveraged loans are floating-rate debt instruments issued to private, sub-investment grade companies, typically made to help finance M&A activity such as leveraged buyouts by private equity sponsors.

The addressable loan market in Europe for an established manager has around 300 issuers and is approximately €300 billion1 in size, a similar scale to Europe’s high yield bond market.

In Europe, they occupy the space between liquid public bonds and illiquid private debt. Lenders receive private information from issuers, but there is an active secondary market and so there is greater liquidity than for most private debt.

1 Source: Institutional loan market size based on estimates made by M&G Investments, as at 31 March 2018

Why invest in European leveraged loans?

The European loan market has similar characteristics to the larger US market but benefits from a more stable, institutional-only investor base. This has contributed to comparably higher returns and lower volatility over past decades.

Potential benefits include:

  • Attractive, relatively stable returns
  • Downside protection from senior-ranking security over a borrower’s shares and assets
  • Low interest rate duration
  • Liquidity and short ramp-up periods for investment
  • Diversification

Our investment philosophy

M&G was one of the first non-bank investors in European loans in 1999, and, with close to US$11.6 billion2 under management, is one of the largest managers in Europe today.

We take a long-term view, and our funds target exposure to large, stable businesses while also prioritising diversification and liquidity. We believe that selectivity in investment is extremely important. We have declined the majority of all deals shown to us over time, which has contributed to a far lower level of defaults than the overall European loan market. Key to this is M&G’s large, dedicated private loan analyst team and access to a specialist restructuring team.

2 Source: M&G Investments, as at 31 March 2018

Leveraged finance investment team

Catherine Ross-89 x 102 
Co-Head of Leveraged Finance
Catherine Ross
fiona-hagdrup-89 x  102 
Fund Manager
Fiona Hagdrup
Andrew Boughen-89 x 102 
Fund Manager
Andrew Boughen
hannah-edwards 
Client Support
Hannah Edwards
catherine-peters 
Associate Director
Catherine Peters
Tom Lane-89 x 102 
Associate Director
Thomas Lane
Cameron Low-89 x 102 
Secondary Trader
Cameron Low

The information on this website is for Institutional Investors only. Specifically, the information on these pages should not be used or relied upon by the public of Hong Kong or any other type of investor from any other jurisdiction.