Expert questions expertise of funds to buy packaged debt

London Business School expert concerned about expertise and liquidity

An Executive Fellow of Finance at London Business School has added weight to concerns about asset managers turned shadow banks. In particular whether, when they lend to smaller companies, whether they have sufficient expertise, and whether, were savers to withdraw, they have adequate liquidity to meet that demand.

Speaking recently to the Financial Times, David Pitt-Watson, Executive Fellow of Finance, London Business School and former director of Hermes Fund Managers, said: “It is a good idea for fund managers to finance the real economy.  But whenever such finance is offered, we need to ask whether fund managers know the companies they are lending to? Or if are they buying packaged debt, do they understand what lies behind it? Should this not be the job of recapitalised banks, which have the expertise and money to lend?"

The Financial Times reports that the number of asset managers lending directly to companies in the US and Europe has more than doubled in the past two years. While banks have been scaling back direct lending in an effort to strengthen their capital position, the paper reports that there has been a 120% rise in the number of fund managers operating direct lending strategies.

Pitt-Watson believes we should keep a close eye on the expanding industry of financial intermediaries which is growing now at an unprecedented rate.