Hedge funds in the U.K. have found a new corner of the market in which they hope to make money: corporate bank loans to fund major European acquisitions. “Although hedge funds have been active in leveraged loans for a while, we are seeing them come in the large investment grade acquisitions loans for the first time now,” Leander Christofides of JPMorgan told the Financial Times. “This is new.”
The hedge move, says the FT, represents a shift in dynamics as more non-bank financial institutions are entering the field. By the end of 2006, about half of the primary loan market will be populated by non-banks, with a growing number of them hedge funds; in contrast, the number of non-banks in the field hovered around zero as recently as two years. Hedge funds, according to the FT, first got their feet wet with risky loans, but now they have ventured into loans issued by companies with a low-quality investment grade credit rating, and, as the paper puts it, “the safest parts of loans issued by risky companies.”