Benelux corporates are much more likely to seek alternative finance from high net worth individuals and family offices than their counterparts in Europe, according to a new report by law firm Allen & Overy.
Bank lending still accounts for 48% of all corporate funding in western Europe, the report said, but almost half of corporates expect their use of alternative finance to increase over the next five years.
The report Funding European Business: Harnessing Alternatives surveyed investors and corporates in France, Germany, Italy, Spain, UK and Benelux.
Sixteen per cent of corporates use family offices for alternative finance and 29% use high net worth individuals. The most popular sources of alternative finance were private debt funds and asset managers.
But the use of family office and HNW finance varied between countries. Two thirds of corporates polled in Benelux sourced funds from HNW individuals, and 33% of French corporates did the same. Family offices were used by a fifth of corporates in these two countries.
But in Spain only 3% of corporates were engaging with HNW individuals for finance.
The report said that investing in the sector is seen as a normal part of an investment portfolio strategy in France. “Awareness and marketing are a key factor,” it stated. “French HNWIs have been active in alternative finance for a while. Investing in the sector is a normal part of an investment portfolio strategy. Corporates and banks know they can approach HNWIs and family offices and receive a considered response.”
The report pointed out that corporates are most likely to source alternative finance from providers in their own country, ignoring capital that could be available to them elsewhere across the continent.
“Standardised documentation and a guide to best practice for private placements have provided a foundation to help make this market more uniform," said Allen & Overy partner Ben Fox. “But it’s evident that more needs to be done to educate players about these structures in order to achieve a deeper pool of capital across Europe for everyone’s benefit.”
In February, a working group led by the International Capital Market Association released the Pan-European Corporate Private Placement Market Guide as a voluntary framework for best practice. Allen & Overy’s report found 79% of investors were aware of the guide.