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Investors remain on lookout for distressed loans

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Most investors are as active as they were one year ago seeking opportunities to acquire distressed loans, according to a new survey from Ernst & Young.

The study, “Flocking to Europe: Ernst & Young 2013 non-performing loan report,” reveals that investors remain as active (38 percent) or more active (32 percent) as they were in 2012 seeking opportunities to acquire “distressed” or nonperforming bank mortgage loans that have been securitized. Less than one-third of the survey respondents (30 percent) say they are less active than they were one year ago.

About one-third of the respondents, the report adds, have allocated less than $100 million for the purchase of non-performing loan (NPL) portfolios in 2013, up from 23% in last year’s survey. Smaller percentages of investors intend to invest more.

Just over two in 10 (22 percent) plan to allocate between $100 million and $500 million, the report shows. Less than one in 10 (8 percent) of the respondents intend to acquire NPL portfolios valued at $500 million to $1 billion.

When asked how frequently they access the NPL market on a scale of one to four (one being the most frequent, four being the least), most of the survey respondents (1.41) flagged “off-market transaction sources and direct negotiations.” The investors cited less frequently “participation in broadly marketed offerings by sales agents” (multiple bid; 2.33 on the scale); and use of “online resources such as Internet auction sites” (2.84).

Nearly two-thirds of the survey respondents (65.6 percent) say the U.S. will remain their primary market for NPL acquisitions in 2013. This is followed by Europe (31.1 percent of respondents) and Asia (3.3 percent).

Of the investors primarily focused on Europe this year, nearly half (46 percent) say that Germany is their target market. Significant percentages of respondents also identify the U.K. (39 percent), Spain (33 percent) and Ireland (30 percent).

About half of the survey respondents say they are looking for investment returns of 16 percent to 20 percent, the same as a year ago. Those seeking returns of more than 20 percent declined to 22percent from 25 percent a year earlier. 

The biggest change came in the percentage of respondents seeking returns of 10 percent to 15 percent. That percentage increased to 29 percent in Ernst’s latest survey from 20 percent a year ago.


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