11:43 Tue 05 Jan 2010
AIC lobbies banks to resume lending to investment companies
The Association of Investment Companies (AIC) is holding talks with a wide range of banks in a bid to convince them to resume lending to investment companies.
The seizure in credit markets has put pressure on the investment company sector with a number of trusts coming dangerously close to breaching their covenants as interest payments on loans soared.
The lack of lending facilities forced investment companies to look at alternative means of raising capital. A number of trusts, all of which were in the private equity sector, issued zero dividend preference shares to raise money.
Ian Sayers, who took up the post of AIC director general this week, said the discussions with the banks are designed to provide greater clarity to the investment company sector on the level of financing available to them.
Sayers said: '12 months ago it was understandable why banks would not lend to investment companies but things have since stabilised. A number of banks have approached me and said they are in a better position than they have been.'
'It's definitely the case that obtaining suitable finance has become more difficult but the position today is much better than it was three to six months ago.'
He added: 'If the banks are looking to lend, investment companies would be an attractive sector to lend to as they have lots of assets, many of which are liquid and therefore provide a lot of security. What we can do as a trade body is to get the message across to our members about the true financial state of the banks.'
The AIC is not only in discussions with RBS and HBOS but also with banks which have not traditionally been associated with the sector. 'The established lenders are one group we are in discussions with,' Sayers said. 'But we are also in talks with lenders which have not traditionally been associated with the investment company sector in areas of the world which have not been involved in the market. It would be healthy if they could join in and provide fresh competition.'
But the AIC said it is not totally dependent on bank lending to help revive interest in the sector and in February it will be hosting a conference to analyse the range of financing options available to investment companies.
'This conference will discuss all the pros and cons of raising finance,' Sayers said. 'A number of different opportunities to raise finance have emerged during the financial crisis and we will be discussing a whole variety of things.'
Investment companies can gear to deliver investment performance. The lack of financing has limited the ability to do this and significantly reduced the number of new launches last year. However, Sayers expects the number of new launches to pick up as financial conditions improve.
'We have a feeling there will be a number of new launches,' Sayers said. 'Strategies which employ gearing need the availability of financing before they launch.'
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