global non-bank financial institutions - capitalizing on ...ae7e4e26-93d7-4238-ba13... · global...

Global Non-Bank Financial Institutions -

Capitalizing on Bank Regulation for Growth

Nathan Flanders, Managing Director, Financial Institutions

Contents

1 What Has Driven Global NBFI Growth and

Where Does it Go From Here?

2 Who, What and Where is Shadow Banking?

3 Case Study: Alternative Investment Managers

4 NBFI Rating Navigator Preview

5 Relevant Research and Glossary

3

www.fitchratings.com

Global NBFI Growth Drivers

Driver Impact(s)

Cyclical vs.

Structural

Bank Regulation

Activities previously undertaken by banks have been pushed out, in part or in their

entirety, towards less-regulated entities, given punitive capital charges, explicit

caps/bans and general heightened scrutiny.

Structural

Low Interest Rates

Investors’ yield appetite has improved funding access for NBFIs, allowing them to extend

duration, increase funding diversity and unencumber assets. Interest expense burdens

for borrowers and end-customers have also been reduced.

Cyclical

Benign Asset Quality

Favorable economic conditions have moderated the impacts of NBFIs’ expanded risk

appetites and/or unproven underwriting standards/models. Underlying borrowers who

might have experienced payment pressure in a more challenged environment have

instead been able to refinance obligations.

Cyclical

Technology Adoption New technologies have served to challenge certain of banks’ prior advantages related to

scale, barriers to entry, branch presence, client information/access, etc. Structural

NBFI as a Policy Tool

in Developing Markets

Developing market governments are increasingly supportive of NBFIs (along with banks

and their subsidiaries) to promote financial market development.

Structural

4


What’s Being “Pushed Out” of Banks and Why

Higher Capital

Charges

Lower Quality

Borrowers

Regulatory

Prohibition/Caps/Scrutiny

Elevated

Funding Risk

More Highly-Leveraged Lending

Consumer Installment Lending

Aircraft Leasing

Private Equity/Hedge Fund Investing

Non-Standard Mortgage Lending

Delinquent/Defaulted Mortgage Servicing

Physical Commodities Trading

Repurchase Agreements

• Alternative Investment Managers

• Business Development Companies

• Hedge Funds

• Insurance Companies, Corporations, REITs

New/Expanding Non-Bank Players:

• Non-Bank Securities Firms

• Non-Bank Consumer Installment Lenders

• Non-Bank Mortgage Originators/Servicers

• Marketplace Lenders

5


What Banks and Other SIFIs Have Said

“It’s more a function of the regulatory capital charges that we were

taking on the order book. The aircraft, for the most part, are not going

into the bank, so there's no particular advantage to being part of a

bank.”

-John Thain, former Chairman and CEO, CIT Group, Inc., Feb. 2016

regarding the potential sale/spin of its aircraft leasing business

“And our action eliminates a large wholesale funded non-bank SIFI and

we are working with regulators on SIFI de-designation. This is exactly

what was envisioned by the FSOC process.”

-Jeff Immelt, Chairman and CEO, General Electric, April 2015

regarding the planned reduction in the size/scope of GE Capital

“The focus on the non-core portfolio has been a focus of the bank for

a few years, and we intend to make sure that we can find [a] solution,

so that the non-core portfolio can evolve and can be reduced in the

future. I think that's natural evolution and an important evolution for

us.”

-Jean-Pierre Mustier, CEO, UniCredit SpA, August 2016 regarding

announced strategic review of business activities

“It's a business that is a terrific business but is a business that's non-

core to really what Citi is.

So we're continuing to explore options with that business. And when the

time is right, we're certainly going be prepared to move on it.

-Michael Corbat, CEO, Citigroup, Inc., January 2014, regarding

OneMain Financial

“Our commodities businesses, the physical oil

commodities businesses that we're selling, they have revenues but

are PBT break even with some capital tied up in them, so exiting

physical oil may reduce revenues but it's accretive to capital and

accretive to earnings and again that's why as we're looking at it .

-Ruth Porat, former CFO, Morgan Stanley, July 2014

“N M Rothschild & Sons Limited (“NMR’’), had sold Five Arrows

Leasing Group. As a result of this sale NMR no longer requires UK

deposit funding and will therefore retire its UK deposit taking licence,

subject to regulatory consent. This represents a further simplification

of the Group.”

-Rothschild & Co. press release dated April 13, 2016

6


What’s Being “Pulled In” by Banks and Why

Favorable Risk-

Adjusted Returns

Higher Quality

Borrowers

Stickier

Associated

Deposits

Less Balance

Sheet Usage

Internet Banking

Adoption

Prime Auto/Credit Card Lending

Prime Mortgage Lending/Servicing

Retail Brokerage

Wealth Management

Investment Management

Former Non-Banks Adopting an Internet Banking Model:

Sector Issuers Securities Firms Goldman Sachs, Morgan Stanley, Stifel

Credit Card Lenders American Express, Discover, Synchrony

Auto Finance Companies Ally, Mercedes Bank, Opel Bank, RCI Banque

Commercial Finance Companies CIT

Retail Brokers Charles Schwab, Scottrade

Payment Networks Ant Financial

Insurance Companies TIAA

Contents







8


Non-Bank Credit Intermediation on the Rise

• Beginning in October 2011, The Financial

Stability Board (FSB) implemented a

framework to monitor shadow banking

globally.

• The FSB publishes an annual summary of its

findings, the most recent of which was

published in November 2015.

• The data covered 26 jurisdictions and 90% of

global financial system assets.

• The FSB broadly defines shadow banking as

“credit intermediation involving entities and

activities fully or partly outside the regular

banking system.”

30

.0

36

.9

42

.9

46

.3

56

.1

66

.7

60

.6

64

.1

68

.3

68

.2

73

.0

78

.2

79

.8

0

10

20

30

40

50

60

70

80

90

100

Global Growth of Credit Intermediation by "Other Financial

Intermediaries" ($T)

Note: Data reflects credit intermediation involving entities other than banks, public financial institutions, central

banks, insurance companies and pension funds. Source: Financial Stability Board's 'Global Shadow Banking

Monitoring Report 2015'.

9


Varying Degrees of Shadow Banking Around the World

54.5

%

17.0

%

16.7

%

14.3

%

13.4

%

12.5

%

11.4

%

11.1

%

10.0

%

9.8

%

9.7

%

9.0

%

8.4

%

8.3

%

8.3

%

7.1

%

6.3

%

5.1

%

5.0

%

4.6

%

4.3

%

2.4

%

2.3

%

1.7

%

1.2

%

1.2

%

0%

20%

40%

60%

Irela

nd

Ge

rman

y

U.S

.

Bra

zil

Mexic

o

U.K

.

Kore

a

Ca

na

da

India

Fra

nce

Sw

itze

rla

nd

Ch

ile

Ja

pa

n

Arg

en

tina

Sou

th A

fric

a

Ch

ina

Austr

alia

Ne

the

rla

nds

Spa

in

Ita

ly

Turk

ey

Ru

ssia

Sau

di A

rab

ia

Ho

ng

Kon

g

Sin

gap

ore

Indo

ne

sia

Shadow Banking by Country (YE14)

As a % of Total Financial Assets Average

U.S., 40%

U.K., 11% China, 8%

Ireland, 8%

Germany, 7%

Japan, 7%

France, 4%

Canada, 3%

Netherlands, 2%

Switzerland, 2% Other, 9%

Shadow Banking by Country (% of Global Total, YE14)

U.S.

U.K. China

Germany

Japan $0

$4,000

$8,000

$12,000

$16,000

$0 $20,000 $40,000 $60,000 $80,000 $100,000

Sh

ad

ow

Ban

kin

g A

ssets

Total Financial Assets (Including Shadow Banking)

Shadow Banking Relative to Total Financial Assets, By Country ($B, YE14)

Note: The FSB defines shadow banking as non-bank credit intermediation involving maturity/liquidity transformation, imperfect credit risk transfer, and/or leverage, excluding insurance companies (other than financial guaranty insurance companies), pension funds, equity investment

funds, unlevered closed-end funds, equity REITs and entities consolidated into a banking group for prudential purposes. CAGR - Compound annual growth rate. Source: Financial Stability Board's 'Global Shadow Banking Monitoring Report 2015'.

-2%

-2%

-1%

0%

2%

3%

3%

3%

5%

6%

7%

8%

9%

9%

9%

11%

12%

12%

15%

15%

17%

17%

32%

37%

48%

49%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Fra

nce

Italy

Sp

ain

U.K

.

Sin

ga

pore

Au

str

alia

U.S

.

Neth

erla

nds

Jap

an

Germ

any

Me

xic

o

Sw

itzerlan

d

Tu

rkey

Irela

nd

So

uth

Afr

ica

Ko

rea

Canada

Chile

Bra

zil

Sa

udi A

rabia

Indonesia

India

Russia

Hong K

on

g

Arg

entin

a

Chin

a

Shadow Banking Growth by Country (% CAGR, 2011-2014)

10


Small, But Worthy of Scrutiny

Banks, 45%

Insurance Co.'s, Pension Funds, Central Banks, Public Institutions, 30%

Investment Funds, 10%

Broker-dealers, 4%

Structured Finance, 2%

MMFs, 2%

Fincos, 1% Trust Co.'s, 1%

REITs, 1%

Other, 5%

Other Financial Intermediation, 25%

Global Credit Intermediation of Financial Assets (YE14)

2.0

2.7

3.3

3.3

4.6

7.3

11.2

10.3

10.5

10.9

10.7

9.9

9.2

3.7 4.0 4.2 4.2 5.0

6.4

9.1 8.3 8.1

7.7 7.3 6.9

6.5

0

2

4

6

8

10

0

2

4

6

8

10

12

Global Bank Credit Risk Exposure to Shadow Banking

$T (LHS) % of Bank Assets (RHS)

10% 11%

12% 12% 14%

16%

20% 21% 21%

20% 20% 20% 22% 23% 22%

0%

10%

20%

30%

$0

$2,000

$4,000

$6,000

Total Loan Commitments

U.S. Non-Banks ($B) FBOs ($B)U.S. Banks ($B) U.S. Non-Bank as a % of Total

23% 25%

13% 12% 12%

10% 13%

34%

30%

24% 22% 21%

19% 17%

19%

0%

10%

20%

30%

40%

Classified as a % of Commitments

U.S. Banks FBOs U.S. Non-Banks

Note: Loan commitments include any loan or loan commitment of at least $20 million that is shared by three or more supervised institutions. A classified commitment is an asset that is rated substandard, doubtful or loss on the regulatory scale. FBO - Foreign Bank-Owned.

Source: Shared National Credit Program 2015 Review. Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency.

Note: Per the FSB, due to data consistency limitations "Hedge funds are significantly underestimated in this report". MMFs - Money market funds. Fincos - Finance companies. REITs - Real estate investment trusts. HFs - Hedge funds. Source: Financial Stability Board's 'Global

Shadow Banking Monitoring Report 2015'.

11


Pros and Cons of Shadow Banking for the Financial

System Pros:

• Provides credit for underbanked

• Diffuses (direct) credit risk across the financial system

• Serves as an outlet for banks to divest non-core

activities

• Potential for increased asset/investment

specialization

• Generally higher capitalization levels versus banks

• Modest size relative to system wide financial assets

Cons:

• Potential secondary risk exposures for banks (lending

exposure, forced asset sales, etc.)

• Reliance on wholesale funding sources

• Rapid growth in some sectors

• Unproven maturity transformation capabilities

• Less consistent/transparent financial reporting

• Evolving/developing regulatory frameworks

“Intermediating credit through non-bank channels can have

important advantages and contributes to the financing of the real

economy.”

– Financial Stability Board’s ‘Global Shadow Banking Monitoring

Report 2015’

Shadow banks can “become a source of systemic risk, especially

when they are structured to perform bank-like functions (e.g.,

maturity and liquidity transformation and leverage) and when

their interconnectedness with the regular banking system is

strong.”


Report 2015’

“FSB members noted current concerns about rising risks

stemming from the overestimation by investors of the degree of

liquidity in fixed income markets as well as the growth of assets

under management in funds that offer on-demand redemptions

but invest in less liquid assets.”


Report 2015’

12


Audience Question: The Net Impact of Shadow

Banking’s Post-Crisis Growth Is?

A. B. C.

21% 21%

59%

A. Positive – It has moved riskier

activities away from deposit-funded

banks and towards institutionally-

funded non-banks, thereby reducing

the likelihood of future systemic

shocks and debtholder bail-

ins/taxpayer bailouts.

B. Negative – The risk hasn’t left the

overall financial system, and in fact,

is now housed in less-transparent

and less-regulated entities than

previously.

C. Neutral – The positive and negative

effects roughly offset each other.

13


Where Does Shadow Banking Go From Here?

• Ultimately, the credit risk has not left the

system

• With increased size, will likely come

increased regulatory scrutiny

• Already, a number of regulators are

heightening their focus on shadow

banking, but transparency remains a

constraint

• In the interim, banks are expected to:

• Use shadow banks as an outlet to divest of

non-core activities

• Selectively compete with shadow banks on

more attractive businesses (prime

consumer lending, fintech, etc.)

• Lobby regulators for increased regulatory

scrutiny of shadow banks

Banks

Shadow Banks

0

1

2

3

4

5

6

0 2 4 6M

ag

nit

ud

e o

f R

eg

ula

tio

n

Size

The Paradox of Unregulated Success

Unlikely Path…

Large

Limited

Significant

Small

Contents







15


Alternative IMs: Players, Products, Regions and Investors

$0

$100

$200

$300

$400

BX('A+)

CG('A-')

APO('A-')

KKR('A')

OAK('A')

FIG('BBB')

ARES('BBB+')

Top Players Over $1T in Aggregate AUM ($B at 2Q16)

FAUM Uncalled Capital Commitments

Note: FAUM also includes the portion of uncalled capital commitments which is already generating fees. AUM - Assets under

management. BX - The Blackstone Group LP. CG - The Carlyle Group L.P. APO - Apollo Global Management LLC. KKR - KKR & Co.

LP. OAK - Oaktree Capital Group, LLC. FIG - Fortress Investment Group LLC. ARES - Ares Management LLC. Source: Company

Filings.

$0

$100

$200

$300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q16

Expanding Product Sets (Blackstone Group LP FAUM by Product Type, $B)

PE RE Hedge Fund Credit

FAUM - Fee-earning assets under management. PE - Private equity. RE - Real estate. Source: Company Filings.

$0

$100

$200

$300

$400

$500

Broad Geographic Reach (Industrywide Capital Raised by Geography, $B)

North America Europe Asia and ROW

Total Raised

Since '08:

Asia & ROW:

$515B

Europe:

$628.2B

N. America:

$1.3T

ROW - Rest of the World. Source: Preqin.

41% 28% 35%

21%

10%

16%

13%

22%

23%

12%

14%

11%

11% 15%

9%

3%

2% 3%

8% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

APO ARES CG

Institutional Investor Bases (Investor Composition as a % of AUM)

Other

Endowment

FoF/Consult

Insurance/Bank

HNW/Retail

Sov/Govt

Pension

Note: APO and ARES as of June 30, 2016. CG as of March 31, 2016. APO - Apollo Global Management

LLC. ARES - Ares Management LLC. CG - The Carlyle Group L.P. Source: Company investor presentations.

16


Filling a Void: Notable Alternative IM Transactions and

Benefits

Activity Representative Non-Bank Participant(s) Transaction Details

Arranging Financing for LBOs Arranged $500m of debt for KKR’s purchase of Mills

Fleet Farm.

Arranging Financing for LBOs

Lead arranger on $1.075bn unitranche facility for

Thoma Bravo’s acquisition of Qlik.

Arranging Refinancings and

Recapitalizations for Larger Companies

Closed an $800m loan financing for American

Seafoods Group as part of a recapitalization.

Purchasing Bank Mortgage Servicing

Rights (MSRs)

Portfolio company Nationstar Mortgage Holdings Inc.

purchased MSRs from banks.

Reducing Non-Core Bank Businesses Portfolio company Springleaf Holdings purchased

installment lender OneMain Holdings from Citigroup.

Purchasing and Refurbishing Foreclosed

Residential Properties

Portfolio company Invitation Homes oversees about

50,000 houses across the country. Many properties

were purchased at auctions.

Helping Effectuate GE Capital’s SIFI De-

Designation

Blackstone purchased a large portion of GE Capital’s

real estate holdings and commercial mortgage

portfolio. Apollo purchased $3.6bn middle market loan

and real estate portfolio from GE/Mubadala JV.

Contents







18


NBFI Rating Navigator to Follow Bank Framework

• Following the successful launch of the

Bank Rating Navigator in 2014, Fitch

plans to launch complementary NBFI

Rating Navigators.

• Dashboard-style tool

• Visual summary of rating criteria

• Replicates analytical thought

process and presents key rating

drivers

• The NBFI framework is expected to be

largely similar in format and more

conservative in output, reflecting the

generally-weaker risk attributes of

NBFIs relative to banks.

19


Average Rating Factor Scores for Banks and NBFIs By Region North America (Developed Markets Only)

= Bank = NBFI

Operating

Environment

Company

Profile

Management

& Strategy

Risk

Appetite

Asset

Quality

Earnings &

Profitability

Capitalisation

& Leverage

Funding &

Liquidity

aaa 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa- aa- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a 0 a 1 0 1 0 1 0 1 0 0 0 1 0 1 0

a- 0 a- 0 a- 0 a- 0 a- 0 1 0 a- 0 a- 0

bbb+ 0 0 1 0 0 bbb+ 0 0 0

bbb 0 0 0 0 bbb 0 0 bbb 0 0 0

bbb- 0 0 0 bbb- 0 0 bbb- 0 0 bbb- 0 bbb- 0

bb+ 0 0 0 0 0 0 0 0 0 0 0 bb+

bb 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

bb- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EMEA (Developed Markets Only)

= Bank = NBFI

Operating

Environment

Company

Profile

Management

& Strategy

Risk

Appetite

Asset

Quality

Earnings &

Profitability

Capitalisation

& Leverage

Funding &

Liquidity

aaa 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a+ a+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a a 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a- 0 0 0 0 0 0 0 0 0 0

bbb+ 0 0 bbb+ bbb+ bbb+ 0 bbb+ bbb+ 0

bbb 0 0 bbb bbb bbb bbb bbb bbb bbb

bbb- 0 0 0 0 0 bbb- 0 0 bbb-

bb+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0

bb 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

bb- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

APAC (Developed Markets Only)

= Bank = NBFI

Operating

Environment

Company

Profile

Management

& Strategy

Risk

Appetite

Asset

Quality

Earnings &

Profitability

Capitalisation

& Leverage

Funding &

Liquidity

aaa 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

aa- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a+ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

a- 0 0 0 0 0 0 0 0 0

bbb+ 0 bbb+ 0 bbb+ 0 bbb+ 0 bbb+ 0 0 bbb+ 0 bbb+ 0

bbb 0 bbb 0 0 0 0 bbb 0 0

bbb- 0 0 0 0 0 bbb- 0 0

bb+ 0 0 0 bb+ 0 bb+ 0 bb+ 0 bb+ 0 0 bb+ 0 bb+

bb 0 0 0 0 0 0 0 0 0 0

bb- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

b+

b

b-

LATAM

= Bank = NBFI

Operating

Environment

Company

Profile

Management

& Strategy

Risk

Appetite

Asset

Quality

Earnings &

Profitability

Capitalisation

& Leverage

Funding &

Liquidity

aaa 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

aa+ 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

aa 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

aa- 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

a+ 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

a 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

a- 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

bbb+ 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

bbb 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 #### 0 ####

bbb- 0 #### 1 #### 1 #### 0 #### 0 #### 0 #### 0 #### 1 ####

bb+ 1 bb+ bb+ #### bb+ #### 1 #### 1 #### 1 #### 1 #### bb+ ####

bb bb #### 1 #### 1 #### bb #### bb #### bb #### bb #### 1

bb- 1 #### 0 0 1 1 1 1 0

b+ b+ b+ b+ b+ b+ b+ b+

b

b-

Contents







21


Relevant Research

Finance and Leasing Companies Investment Managers Securities Firms Business Development Companies

Global

Outlooks

• 2016 Outlook: Finance and Leasing

Companies (Dec. '15)

• 2016 Outlook: Investment Managers

(Dec. '15)

• 2016 Outlook: Securities

Firms (Nov. '15)

• 2016 Outlook: Business Development

Companies (Nov. '15)

Special

Reports

• Aircraft Leasing Sector Review (Apr. '15)

• U.S. Auto Asset Quality Review: 4Q15

(Apr. '16)

• U.S. Credit Cards: Asset Quality Review

1Q16 (May '16)

• U.S. Captive Finance Companies: 2015

Review (Jun. '16)

• Alternative Investment Manager

Runoff Analysis (May '15)

• US Alternative Asset Managers - An

Industry Update (Nov. '15)

• Performance Challenges for

Traditional Investment Managers

(Aug. '16)

• Retail Brokerage Industry

Update (Mar. '16)

• U.S. Banking Capital

Markets Quarterly 1Q16

(Apr. '16)

• BDC Energy Stress: Drilling into the

Details (Jan. '16)

• Business Development Company Industry

Overview (Apr. '16)

Press

Releases

and

FitchWire

• FHLB Funding for mREITs Good While It

Lasted (Jan. '16)

• Activists Change Tack With US Financial

Institutions (Feb. '16)

• Aircraft Lessors Largely Insulated from

China Slowdown (Mar. '16)

• Marketplace Lender Enthusiasm Confronts

Market Realities (Apr. '16)

• Auto Asset Quality Performance to Decline

as Losses Tick Up (Apr. '16)

• Energy Sector Won't Fuel US Consumer

Credit Downturn (May '16)

• U.S. Credit Card Asset Quality Should

Weaken as Underwriting Loosens (May

'16)

• Leverage Continues to Slowly Build at U.S.

Captive Fincos (Jun. '16)

• Brexit Means More Pain for U.S. Mortgage

Servicers (Jun. '16)

• Large Private Equity Managers Flex

Remediation Muscles (Jan. '15)

• Valuations Offset US Active Manager

Pressures, For Now (Jun. '15)

• US Alt Managers Risk Catching

Energy Before It Bottoms (Oct. '15)

• U.S. Alt Managers Increasing Focus

on Core Real Estate (Nov. '15)

• U.S. Alt Manager Buybacks Could

Affect Liquidity, Leverage (Feb. '16)

• Volatility Adds to Challenges for

Traditional Investment Managers

(Aug. '16)

• US GTUB Strong Advisory

Won't Offset Weak Debt

Trading (Jan. '16)

• U.S. Retail Brokers Focus

On Customer Wallet Share

(Mar. '16)

• US Leveraged Loan Slump

Weighing on Investment

Banks (Mar. '16)

• Market Vol Bigger Indicator

for US GTUBs than IB

Guidance (May '16)

• Volatility Drives FICC

Revenues for US GTUBs

(Aug. '16)

• Equity Discounts to NAV Add to BDCs'

Headaches (Jan. '15)

• Lending Slowdown Is Reversing BDCs'

Growth (May '15)

• Discounted BDCs Raise Potential for

Buybacks (Aug. '15)

• BDC Debt Wall Poses Potential

Challenges for 2016 (Oct. '15)

• US Activists Target BDC Governance

(Nov. '15)

• US BDCs Remain Positioned to Withstand

Oil (Jan. '16)

• Business Development Company

Leverage Ratios Challenging to Manage in

2016 (Apr. '16)

• U.S. BDC Valuations Improve in 1Q but

Big Challenges Remain (May '16)

22


Glossary

APAC – Asia Pacific

APO - Apollo Global Management LLC

ARES - Ares Management LLC

AUM – Assets under management

BX - The Blackstone Group LP

CAGR – Compound annual growth rate

CG - The Carlyle Group L.P.

EMEA – Europe, Middle East and Africa

FAUM – Fee-earning assets under management

FBO – Foreign bank-owned

FIG - Fortress Investment Group LLC

Finco - Finance company

FoF – Fund of fund

FSB – Financial Stability Board

GE – General Electric Company

GE Capital – GE Capital Global Holdings, LLC

HF - Hedge fund

HNW – High net worth

JV – Joint venture

KKR - KKR & Co. LP

Latam – Latin America

MMF - Money market fund

MSR – Mortgage servicing right

NBFI – Non-bank financial institution

OAK - Oaktree Capital Group, LLC

REIT – Real estate investment trust

ROW – Rest of the world.

SIFI – Systemically important financial institution

23


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Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently

forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be

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The information in this presentation is provided “as is” without any representation or warranty. A Fitch Ratings credit

rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than

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to investors by the issuer and its agents in connection with a sale of securities.

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