Business Leaders Demand Growth as Downgrades Hit Banks

Institutional investors should be called upon to support growth in the UK economy, experts say, as Moody’s downgrades banks that should be providing financial backing.

(June 22, 2012) — Politicians and business heads have urged the Bank of England to avoid stymieing domestic growth by finding alternatives to current lending and Quantitative Easing (QE) practices – which could include tapping institutional investors.

John Cridland, the Director General of the Confederation of British Industry (CBI), told an audience of business leaders last night that new approaches to funding growth and injecting liquidity into the economy were needed in the UK to make sustainable economic progress.

“The fact is we need to raise levels of finance in the economy to support our growth aspirations. The announcements by the Chancellor and Bank of England Governor at the Mansion House signalled fresh action to strengthen our defences against shockwaves from the Eurozone and get more money flowing into the economy. We need an action-this-day approach, and the lesson so far is that we must not allow good intentions to be lost to poor implementation. I want to see urgency to stop the recovery being choked off by a lack of finance.”

Cridland said alternative sources of funding should be sought if banks were unwilling or unable to produce investment. This could mean the UK government adjusting European Union regulation when it was implemented into national law, rather than ‘gold-plating’ it in the original form.

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“Reforms mustn’t stop new types of financing taking root. The European Commission must change its approach to the Solvency II Directive – it has to make commercial sense for insurance firms to invest in infrastructure. We must give active support to those parts of the economy where bank lending has dried up the most.”

Cridland also urged the Bank of England to engage in alternative methods of QE, which could see the purchase of corporate loans and bank debt. The current practice of buying gilts has served to push down yields and hike up pension fund liabilities that are measured against them.

Elsewhere, Vince Cable, Business Secretary in the UK Government, echoed these sentiments on a push for growth and threw support behind alternative QE.

In a speech to think tank Centreforum last night he said: “Aggressive monetary policy, enhanced by QE, has now been operating for four years. And the IMF has recently argued strongly for a reinforcement of supportive monetary policy through the liberal provision of liquidity to the banking system – as announced on Thursday, QE with a wider range of assets, and more aggressive interest rate policies. I would supplement these useful moves with an observation about how monetary policy is communicated.”

These calls coincided with moves by ratings agency Moody’s to downgrade 15 financial institutions with capital market units. Fifteen banks based in the UK and United States saw their credit ratings cut by at least one point. Four of them had their short-term credit ratings downgraded, leading commentators to speculate that this could mean higher funding costs and more reliance on central bank funds, adding further pressure to already strained governments.

(June 21, 2012) — North America-based endowments are stepping up their allocation to private equity, a study by Preqin shows.

According to its research, these institutions have remained committed to private equity investment, with 94% intending to increase or maintain their exposure to private equity in the longer term. Over half (58%) of North America-based endowments expect to make their next private equity commitment before the end of 2012 and a further 10% in 2013.

“Like many institutional investor types, North American endowments have been impacted by the tumultuous financial markets in recent years,” Preqin’s Emma Dineen stated in a release. “Despite some of these institutions being faced with liquidity issues and over-allocation to the asset class, many have ramped up their exposure to private equity investment over the past few years and it is clear that this important investor group remains committed in the long term.”

Dineen added that while turbulent financial markets have made investors more cautious, many North American endowments are proving their dedication to private equity by making plans for their next fund commitments.

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Furthermore, Preqin’s study revealed that 72% of respondents view North America as presenting the most attractive opportunities for private equity investment, while 31% identify Europe as such.

Additional research by the Private Equity Growth Capital Council (PEGCC) points to the allure of private equity investments. New analysis by the firm showed that private equity has consistently beat the S&P 500 index.

“Private equity continues to outperform the S&P 500 over both near and long time horizons,” said PEGCC President & CEO, Steve Judge. “The consistent private equity outperformance of public markets is essential for pension funds, university endowments and charitable foundations to achieve their investment goals. Private equity helps provide retirement security to millions, makes college a reality for more students and funds charitable causes.”