Dilek Mackenzie explains
why a more active secondary market would benefit the asset finance
sector.
Go deeper with GlobalData
The debt market for assets is
comprised of the primary market, where the assets and securities
are originated and funded, and the secondary market, where
investors trade these securities after origination.
There has been an ongoing
discussion in the asset finance community as to whether or not the
asset finance market can benefit from a more active secondary
market.
In the past three years,
constrained profitability and stricter regulation has led many
banks and finance companies to restructure and reposition
themselves in their core markets and, as a consequence, identify
what they refer to as the non-core portfolios. These are assets
that either generate below hurdle rate returns or sit outside the
markets identified in the company’s long term vision.
Although the non-core assets
are clearly not seen as a factor in the continued success of these
companies (more as a nuisance in terms of tying up valuable
resources and management time), there is no reason why they can’t
provide a valuable contribution to the company’s
bottom-line.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataSuch contributions are
enhanced and facilitated more efficiently when the sector has an
active secondary market.
There is already a secondary
market for asset finance transactions, but it suffers from various
inefficiencies, limited and fluctuating size and depth and a lack
of standard market practice.
The trading relies heavily on
word of mouth generation of interest and one-to-one relationships
between organisations.
The success rate, return and
transaction completion time depend heavily on the experience of the
parties involved, particularly their familiarity with the
commercial and practical issues surrounding the sale and purchase
of the contracts.
What the asset finance
industry needs is a centralised database and a structured framework
for bringing sellers and purchasers of portfolios together outside
the traditional bilateral dealing practice.
An active secondary market
will enable improved liquidity, a more efficient distribution of
risks and rewards and a wider geographical coverage. As a result, a
more diverse investor base will be able to share and manage the
portfolios.
It will encourage the growth of niche financial
intermediaries and captives, who can earn fees from their ability
to originate and structure deals and allow wholesale funders, or
even institutional and corporate investors, to acquire exposure in
markets where they have no established channels.
