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Take the private debt placement market, which provides credit for firms that may lack a formal credit rating. This has long been a source of financing for smaller US companies but barely exists in Europe's bank-dominated corporate funding markets. That may be starting to change.
Sure, the private debt market is dwarfed by its public sister and is illiquid. To date it has been dominated by US life insurance investors—understandable, since US firms have historically been the biggest issuers. US insurers invest roughly 10 per cent of their fixed income portfolios in private placements; European insurers virtually nothing. Most European insurers don't have the necessary credit analysis capabilities. A team of at least four and $1 billion in deals annually might be needed to justify entering the market, estimates one private placement banker.
With banks deleveraging and cutting corporate lending, spreads may widen, creating opportunities for insurers. With the European insurance industry holding total investable assets of some €7.5 trillion ($9.853 trillion), even a small shift in allocation could be a shot in the arm for business.
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