Khaleej Times, Wednesday, May 10, 2023 | Shawwal 20, 1444
AIM brings to focus opportunities, challenges of investing in distressed assets, non-performing loans
Emirates:
Investment experts from around the world discussed the opportunities and
challenges of investing in distressed assets and non-performing loans (NPLs) at
the 12th edition of the The Annual Investment Meeting (AIM), which took place at
the Future Room located at the Abu Dhabi National Exhibition Centre.
The conference was held in two panels. The first panel ‘The Role of Distressed
Real Estate in a Diversified Portfolio’ examined the current economic
environment and how rising interest rates are creating opportunities for
distressed debt investors. The speakers discussed the challenges that could
limit the growth of this market, including the absence of covenants in credit
documents, the amount of dry powder in the market, and the maturity wall not
ramping up until 2025.
This session was led by Viktoria Soltesz, CEO, PSP Angels. Featuring experts as
Mihai Pop, Investment Director APS Investments, Hans-Jörg Baumann, Chairman of
StepStone Private Debt, CH, Federico Gaito, Managing Director, Taurus Asset
Management, ES, Christophe Beauvilain, Managing Partner, Pygmalion Capital
Advisers, UK, the session highlighted how real estate investments can be an
attractive option for investors seeking diversification and long-term returns.
They also highlighted how, like any investment, real estate carries risks and
uncertainties, which can lead to distressed assets. A distressed asset is a
property that is under financial or operational distress, often due to
foreclosure or bankruptcy.
Christophe Beauvilain said:“The majority of the reason in financial difficulty
is because it’s easy to fall in love with the project. It’s a warning, don’t do
that. In hotel assets, the bank will seize your assets if things get bad, but
even then, that’s not very likely to happen. When things get bad, we sell. Our
role is to go and negotiate with sellers and help the buyers buy assets. Before
Covid, we were at peak, and then we saw a sudden crash. The loan and salary
inflation are bad, so there aren’t many investors. The next massive issue is the
financing rate. We are focusing on Italian hotels and are looking forward to it
as they provide quality. The Italian market is keener with their buyers.”
Mihai Pop said, “No simple way of escaping inflation because it has caused harm
to high earners as well as low earners in the market. In Europe, there is no
rounding price market. There is a difference when it comes to foreign
businesses, it’s better if you are local and invest locally. We will see better
fair in the local market. Keep in mind the location and regional funds.”
Federico Gaito said, “Working with local experts from a data and theoretical
point of view can avoid and price it very differently. Lack of transparency
brings an opportunity to people with a lack of experience in data. In hotel with
distress angels, we can get 18-20 per cent. Distressed is never advertised. In
Europe, bankruptcy is very efficient and gets dragged to 5-8 years. The value is
high. We always focus on consensual deals. With a discount of 50 per cent on
average, it gives us confidence to achieve three-quarters of our goals. We very
often negotiate with existing loans or lenders. We don’t buy your loan and
become a creditor, it’s risky.”
Hans-Jörg Baumann said, “Performance is the sum out of potential. When it comes
to assets, we need to deny the disturbances that are many. It’s tangible. If
financing doesn’t work, then it’s a tremendous problem for real estate. Do you
need to generate income? How much flow is real estate going to generate? It
could be refinancing costs, there is market stress. Do you have the legislative
power to stay in this business? Acquiring a legal system is a must when it comes
to endorsing your rights. The Anglo-Saxon world has an advantage over the
foreign market. The only choice is obtaining luxury information about the legal
system and assets. Entering a transaction is easy, exiting is hard. If low on
income, offense with capital. Don’t go for bulk risk.”
The second panel, ‘Global NPL Investing: Strategies & Opportunities’ explored
the world of global distressed and NPL investing, with insights into the
strategies and opportunities available in this space. The speakers discussed the
different asset classes in this sector of the market, including real estate,
corporate, and consumer debt, the secondary market, and the directions the
market is heading in due to macroeconomic forces.The session was led by Edwin
Harrap, Director, Alantra, UK, and included panellists as José Nestola, Founder
& CEO, Copernicus Group, ES, Konstantin Kraiss, Managing Director, LynxCap
Investments, CH, Martin Machon, CEO, APS Group, CZ and Inam ur Rahman CEO &
Co-Founder, Oasis Global Consulting, USA.
According to experts in this session, non-performing loan (NPL) investing has
become an increasingly popular strategy for investors seeking high returns.
Panellists shared their experiences and analysis of investing in distressed and
NPL assets across different geographies, including emerging markets and
developed economies. They also discussed the challenges and opportunities of
investing in these markets, taking into account macroeconomic conditions,
industry-specific trends and the unique regulatory and legal frameworks that
govern these transactions.
José Nestola said, “We are spread over six countries, and the real challenge is
the quality of data. Not everything is clear when it is given to us by people.
In two to three years, we shall be talking about millions moving into the bank.
But how? Such information is difficult to get your hands into. Especially in the
corporate world. We focus on second opportunities. Lack of information will stop
you from pricing better. Real estate, legal, and financial knowledge is a must.
When done right, equity returns (13-15 per cent). Here your return will be
achieved. When we price everything at the end of the day, we try to see what the
potential buyers want and who they are. The banks are for selling to the right
investors and managing the reputation of themselves. Who is going to check the
services in the market, and what treatment will they have? It’s a tough scheme.
Buying a portfolio of loans is difficult for banks and debtors.”
Konstantin Kraiss said, “Entering new markets is all about learning and gaining
experience. It took us 6 years before making the first investment because it’s
not easy. Financial distress is the most occurred. If there is opportunity, then
there is a debt sitting around, but there are legal services to get ourselves
out of it. Having partners is a must because if someone goes on strike in the
middle of your forecast, then it’s troublesome. Key role is to follow the market
and the supply and stay open to find the best opportunity. There are plenty of
opportunities out there and we must be wise to choose, and it’s a bit exciting.”
Martin Machon said, “Entering the industry is not easy, it takes time and
effort, especially in new markets and first transactions. With the current
inflation and work crisis, the risks are higher. We must be careful and aware of
the legal framework and have a good partner. When starting out, it’s better to
go for smaller assets. The banking system has evolved, but we still face
challenges in dealing with limited tools from them. We need to investigate the
services beforehand and strengthen them through knowledge sharing.”
Inam ur Rahman said: “I believe that NPL markets were thriving before Covid, but
it is difficult to predict how it will be impacted in the future. The legal
framework for NPL varies across countries, and some countries have developed
strict NPL laws, which could be beneficial for investors. Technology has also
had a positive impact on the industry, and I am optimistic about the future.
However, investing in NPL is challenging, and it requires a proper team to
navigate the legal landscape. Lack of clarity and understanding could lead to
losses. Technology, such as blockchain, can help minimize the risk of fraud. To
succeed in this industry, it is crucial to have a team of experts who can
evaluate and assess the situation.”
Experts emphasised that investors need to have a solid understanding of the
different NPL investment strategies available in order to make informed
investment decisions. For example, some investors may prefer to focus on
purchasing individual NPLs, while others may prefer to invest in portfolios of
NPLs. Additionally, investors need to be aware of the unique risks associated
with investing in distressed assets, such as potential legal and regulatory
hurdles, liquidity risks, and market volatility.Overall, global NPL investing
presents a promising opportunity for investors looking to diversify their
portfolios and capitalize on distressed assets in the market.