The French government unveiled its own answer to the funding problems of Europe’s small and medium-sized enterprises in August with the launch of a dedicated state-backed fund to lend directly to these firms. Dubbed Novo, the fund is being established by the Caisse des Dépôts and a group of insurance firms, with the support of the Fédération Française des Sociétés d’Assurance. It will be €1 billion in size and has so far been backed by 18 insurance companies and three pension funds. BNP Paribas Investment Partners won the mandate to manage it in early July. “Our approach is very close to a banking approach,” Stéphane Blanchoz, CIO, alternative fixed income and structuring, at BNP Paribas Investment Partners, tells Euromoney. “We are going to lend money with different covenants. The lending process is credit intensive – our portfolio managers are all credit analysts as well and are experienced in banking.” Loans will run for five to seven years at roughly 200 basis points over OAT and will likely be between €10 million and €50 million in size. The initial target is for 30 to 40 projects to be funded over 10 years.
Blanchoz explains that the Novo fund is a response to the growing interest from institutional investors in loans. “We had interest from European institutional investors wanting to invest in loans. People want more tangible assets, and loans offer better security. There is interest in this space – people want to lend to SMEs,” he says. “We had a track record in leveraged loans, and not all asset managers have this expertise. What was key when we met investors was that they were keen to have a pragmatic approach – this is a new field for everybody.”
Insurance firms that have committed themselves to the fund are understood to include the €36.6 billion Fonds de Réserve pour les Retraites and the €14 billion civil service pension fund Établissement Retraite Additionnelle de la Fonction Publique. BNP Paribas Investment Partners, which has €505 billion under management, is also invested. The French bank inherited a small team managing leveraged loans as part of the Fortis acquisition in 2009, which gave it a track record in managing these assets.
Blanchoz sees the launch of the Novo fund as just the latest example of a fundamental change in European corporate finance. “There has been a change in behaviour by the corporates themselves. A year ago, disintermediation was well under way, but around six months ago the banks became less keen on sharing deals. However, corporates now want to diversify their funding and are more than happy to have funding from external investors and use the banks for revolving credit lines. This trend is now coming from the corporates themselves, not the banks,” he says.
There have been several recent examples of French banks and insurance companies forming partnerships to boost non-bank corporate lending – notably Société Générale’s tie-up with Axa last year. Such arrangements give the insurance company access to a pipeline of new deals and the bank deep pockets in which to place them. But Blanchoz reckons such partnerships might become less popular. “I have always been sceptical on partnerships,” he says. “What matters to us is that the market is as open as possible. We saw partnerships at the beginning of this process, but the market has now moved on. A partnership is interesting if you work on very specific loans that are non-public and that require very specific capabilities. But for asset managers, if they partner, they don’t have access to other bank loans. We are part of the move towards a more open market.”
The extent to which direct lending to small, undiversified corporates can become a big business for non-banks remains to be seen. “French institutional investors will never replace the banks, but we have further to go,” says Blanchoz. “The natural way is not to go to the banks. New start-ups go to private capital, and it should be the same for loans. We are moving from a mark-to-market world where it is not the instant value of assets that investors care about, but more the cashflow projections for those assets.”
