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  • Asset Allocation

Capitalizing on Credit Disintermediation

Chief Operating Officer—Alternatives
Chief Investment Officer and Head—AllianceBernstein Fixed Income
June 11, 2014

Credit providers play a critical role in supporting the economy. Banks, capital markets and alternative credit providers (nonbank lenders such as asset managers, insurance companies, pension funds and specialty finance companies) efficiently allocate capital to borrowers. This access to credit fuels employment growth and consumer spending. Through a virtuous cycle, broad access to credit becomes a driver of economic growth.

As global financial markets mature, this process is facilitating a secular trend of bank disintermediation—with providers of capital moving closer to borrowers. This evolution has been firmly under way in the US for many years, but it has been accelerating.

Only three decades ago, banks provided more than 50% of the total credit extended to finance US nonfinancial corporations and real estate, two sectors that together represent more than 70% of total private sector credit outstanding. This figure has steadily declined to about 23% today due to the growth of capital markets and alternative credit providers. A combination of factors has made bank disintermediation slower to take hold in Europe, but it’s beginning to pick up pace.

We expect disintermediation to gain momentum in the years ahead, with banks continuing to give way to alternative credit providers that continue to move closer to end borrowers. For credit investors, we think that bank disintermediation could have far-reaching implications:

•At its core, the move to broader financing sources may fundamentally alter the best way to approach a fixed-income asset allocation.

•Disintermediation is already fueling long-term credit investment potential in four key market segments: middle-market corporate, commercial real estate, residential real estate and infrastructure. It’s also generating collateralized specialty financing opportunities across regions and market segments.

•As the marketplace evolves, it’s introducing opportunities for alternative credit providers to deliver capital to address shorter-term dislocations and supply/demand imbalances.

These developments may seem to signify notable changes, but they actually represent natural outcomes of a continued evolution that should benefit debt-capital consumers and providers, as well as the economy as a whole.

Steady Growth of US Capital Markets and Alternative Credit Providers
Bank vs. Nonbank Market Share
Through December 31, 2013
Source: US Federal Reserve and AllianceBernstein

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