External private debt funds as a strategic business extension for banks
Kleinmachnow, 23 March 2022 – Municipalities, just like companies, usually work with a manageable group of potential lenders. For banks, it is pleasant to be part of such a pool. “However, lending often fails due to upper limits or limits on equity or risk,” says EDS founder and CEO Sebastian Bergmann. “A private debt fund that is externally managed but tied to the house can solve these limitations and generate additional revenues.”
For example, a fully regulated fund can be created that can be brought on board as an additional strategic syndicate partner for larger financings. “The advantage here is also that the lending policy is coordinated and known, so processes are much faster and more efficient,” says Bergmann. “This not only ensures speed in the loan decision, which benefits the customer.” The additional volume available also increases reliability as a lender.
At the same time, there is no danger that bad risks are only shifted in-house. “Such a fund has to be managed externally and also filled with money by external capital providers,” says Bergmann. That provides a great deal of transparency.” Even if the seed money comes from the bank, approaching additional financiers is a great opportunity. “Such a fund can also be offered to the bank’s own institutional as well as private clients,” says Bergmann. “For them, it is an additional opportunity to generate returns with a largely uncorrelated product.” In general, all asset classes are suitable, but especially those that are the classic domain of banks, such as public infrastructure, real estate or special topics like care & health or SMEs.
For the bank, docking such a fund does not only have strategic advantages, but also tangible financial ones. For example, additional commission income can be generated from sales. The bank also receives remuneration from the fund for asset sourcing, loan servicing or the function as paying agent, i.e. related services. “In addition, economies of scale result from an increased utilisation of the credit department,” says Peter Hoffmann, Co-Founder and CTO at EDS.
It is crucial for the success of such a fund that efficiency advantages from digitalisation are used. “Lean processes, quick decisions, optimally adapted processing and complete integration into one’s own processes make it possible to still achieve very adequate margins even in a challenging interest rate environment,” says Hoffmann. And with a well-coordinated
And acting as a syndicate partner in financing with a well-established team offers further opportunities for new lending business.