Hedge funds are basically controlling the leveraged loan market in Europe, a fact that appears to worry Close Brothers. According research by the U.K. firm, specialized debt and hedge funds are the main lenders for an estimated 50% of the leveraged loans syndicated in Europe, and unlike banks, the unpredictability of HFs should be reason for concern. ÒNot only are hedge fund here to stay,Ó Andrew Merrett of Close Brothers told Reuters, Òbut this research shows just how influential they now are with the controlling positions they hold in the leveraged loan market. Merrett says HF involvement is a Òpositive development,Ó but notes, Òthe fact remains that hedge funds behave in a very different way to traditional lendersÓ in leveraged or distressed situations, with hedgies Òcalling the shots from the creditorsÕ camp.Ó In other words, banks that handle such distress may be more willing to work with borrowers than hedge funds, which, according to market watchers, Òmay behave more aggressively,Ó says Reuters. The banks themselves, however, are not eager to work out such problems and appear to be encouraging the growth of hedge funds in this area by syndicating and selling debt to them.
