France's Hollande reaches out to asset managers to kick start SME financing

21 Apr 2015 | Giada Vercelli


The complex relationship between the French President Francois Hollande and the capital markets may take a new spin after the launch this month of a beauty parade to award 600 million euros for debt and equity financing of both listed and unlisted SMEs to asset managers. The NOVI fund, set up by Caisse des Depots and presented by President Hollande on 3 April, engages French asset managers to carry out due diligence on SMEs on behalf of institutional investors. This is the third programme of its kind. The selected managers include Tikheau, Idinvest Partners, Oddo and Financiere de L’Echiquier.

Manuel Valls’ centre-left government is also moving forwards on structural reforms. Last month they published plans to implement the ‘Loi Macron’ – named after Emmanuel Macron, the 37 year old Economy Minister - passed earlier this year. The focus is on cutting labour costs, increasing the efficiency of employment tribunals, pro-competition measures and a reduction in public administration bodies. In last year’s ministerial shake up, Finance Minister Michel Sapin emerged reassuring its EU partners that France will finally mend its public finances, despite repeatedly failing to bring its deficit below an EU-endorsed limit of 3% of output. The European Commission (EC) has recently extended the deadline for France to meet the 3% deficit target threshold until 2017, with the government already forecasting a budget deficit of 4.1% for 2015. In October, the French government announced it had breached an agreement with the EC to bring its deficit below the 3% ceiling this year. Nevertheless, France's centre-right UMP won the first round of local elections on 22 March, with the far-right National Front second and the governing Socialists third.

In France like elsewhere in Europe, we are finally witnessing an alignment of the government and regulators’ will to use private money and expertise to leverage into the economy. Nevertheless, it is legitimate to ask whether the European market is deep enough to respond to these efforts. “There is a huge communication problem between the financial markets and SMEs,” explains Olivier Kintgen, Chief Investment Officer of ERAAM, ahead of his participation at the HedgeFund Intelligence European Summit. The HFI European Summit will bring together the best of both the EuroHedge Summit and the InvestHedge Forum at the Palais de la Bourse in Paris on Tuesday 28 and Wednesday 29 April. “The way these investments are structured is not standardised – i.e. securitisations – and that can make investors uncomfortable. We assist with this mismatch, we can help improve communication. This is a space where we feel comfortable positioning ourselves,” Kingten explains, predicting a rise in securitisations. The combination of growth in economic activity, investors who are desperate for yield, and regulators’ enthusiasm has been stimulating securitisation supply. The ECB’s Governor Mario Draghi said the ABS programme “reflects the role of the ABS market in facilitating new credit flows to the economy.” Scope Ratings’ analysts agree that “ECB-driven spread compression of European securitisations creates technical conditions supporting issuance volumes of SME CLOs in particular. Low spreads also make securitisations a viable tool for the optimisation of banks’ balance sheets via regulatory risk transfer. For leveraged loan CLOs, it may also drive structural innovation and the resurgence of multi-currency transactions.”

The French effort to engage the financial markets is in line with the European Commission’s push for a broader-based financing system in Europe. “One reason for the quicker U.S. recovery from the financial crisis was its wider system, as well as faster and more decisive decision-making at critical times,” as David Wright, Secretary General of IOSCO has observed in the past. Securities regulators worldwide are thinking in similar ways now, as they have realised the necessity of a broad-based financing system with deep capital markets.


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