Secretive? Not true, says top ‘shadow banker’

Christophe Evain prefers the term non-bank lender, and he tells Margareta Pagano that ICG is going where the banks fear to tread

On the face of it, Christophe Evain is one of those mysterious figures operating in banking’s Stygian underworld, lending billions of exotic, structured senior debt and mezzanine financial products to companies that some doomsayers claim could trigger the next financial crash.

Except that Mr Evain isn’t the remotest bit shadowy. Au contraire, the Breton from Quiberon is rather sunny in the flesh, and delightfully outspoken in squashing the nonsense talked about the so-called “shadow banking” sector. He prefers to describe the lending he does as “non-bank lending”.

First things first. Mr Evain is the chief executive of Intermediate Capital Group, Europe’s biggest asset manager, with a massive €18bn (£13bn) of funds under management. Having just raised a record €6.4bn of new money from investors, ICG is now the fastest-growing specialist asset manager on the continent and is giving the Americans a run for their money.

We meet at ICG’s offices close to Paternoster Square at the foot of St Paul’s Cathedral in the City of London, a stone’s throw from the Stock Exchange, where the group is listed on the FTSE 250 index and valued at £2.4bn. The shares reached a high of £6 this week after ICG reported strong financial results a few weeks ago that showed pre-tax profits up by 9 per cent to £178m, helped mainly by its move to raising third-party, fee-paying funds.

After returning a £300m special dividend to its shareholders, ICG boasts an enviable return on equity of 13 per cent. Not bad for its investors, particularly the pension funds and insurers, in their desperate search for yield. To achieve such returns, Mr Evain says ICG goes where the banks fear to tread, or at least don’t want to tread for now.

“The banks are still not lending as they were before the financial crash,” he says. “We are filling a gap, and there is growing demand from companies for our alternative lending, which ranges from the higher-risk mezzanine finance to longer-term senior debt. Long-term investors like us, too, as they are searching for better yields that have collapsed in the other credit markets because of lower interest rates.”

Over the past three decades, ICG has invested about €14bn directly through its debt products in more than 360 private companies across Europe. Lending ranges from helping Electra, the private equity firm, to invest in the cocktails-to-burgers restaurant chain TGI Friday’s in the UK, to backing Germany’s Minimax, a fire-protection business. Typically, he says, they select companies that are low-tech and low-profile. “We invest in Mittelstand type companies – usually entrepreneurial and with sales of between £200m and £400m. We are strict about what we invest in; the people and cash-flow are important to us, rather than future promises of profit.

“That’s at the heart of our philosophy, while good due diligence is essential. We are hands-on in our approach and like to sit on the boards of the companies we invest in, and stay involved with them for the long term. ”

Today, ICG employs about 250 people, mainly private-debt experts who work across Europe in local networks, scouring the continent for new investment opportunities. At any one time ICG is involved with around 80 companies, ranging from Education Personnel, a UK recruitment agency that specialises in temporary schools staff, to Ter’Flor, a French PVC flooring company.

Criticism of shadow banking – an expression that Mr Evain would like to see dropped – is misplaced, he says. “Our lending is direct and there is no leverage; the banks are more leveraged than us. Since the crash, there has been an increased amount of scrutiny, which is good for the industry as we want to be well regulated, and they have tightened up on the amount of retention capital required, which is right.”

When Mr Evain took the helm five years ago, he shifted ICG’s strategy into more longer-term senior debt to diversify the portfolio, and he plans to raise about €4bn of new money a year. Today, about €7bn of funds are invested in mezzanine products and the same in senior debt, with another €2bn in real-estate lending.

He says Europe is still too reliant on bank lending – typically about 80 per cent of all lending to corporates is by the banks. In the US, the opposite is true and he predicts that lenders such as ICG will continue to grow, as long as bank lending remains stagnant; the private debt market is worth $500bn and is booming.

Europe is looking much brighter and exporters are being helped by the euro moving closer to the dollar, he says. “Over the past few months, we have seen a definite upturn in confidence. This has been helped by the ECB’s quantitative easing but also by the exchange rate. But who knows what is going to happen to Greece? That’s still causing uncertainty, and so is [Britain’s] position with the EU.

“Uncertainty about the timing and outcome of the UK’s referendum is hurting business. Everbody I meet is talking about this: they want clarity. The sooner a decision is taken the better.”

As you might expect of a Frenchman, Mr Evain is wedded to the EU, but he also accepts the need for reform. “There is lot that could be changed. Why on earth is everything in the EU translated into 23 languages – it is such a waste and the cost must run into millions. Three languages would do.

“But, most importantly of all, the UK should take a more central role in Europe; try to influence the EU to be more Anglo-Saxon. It’s no mystery that France and Germany are too statist and need a more flexible approach. The UK should be leading the way – after all, you are one of the three big powers with France and Germany.”

Even so, he says the City of London is still the best place to do business. “I’ve lived here for nearly 20 years and there is no doubt that its better to work here than in Paris. Things get done faster, there’s a can-do attitude and the administration is more efficient. And the restaurants are incredible.”

Better than Paris? “Maybe,” he laughs. Knocking critics of shadow banking is one thing – but criticising French cuisine is quite a different kettle of fish.

THE CV CHRISTOPHE EVAIN

Job: Managing director and CEO at Intermediate Capital Group PLC

Born: June 14 1962

Education: Masters in economics and management, Paris Dauphine University

Career: Worked at Credit Lyonnais in the US and for financial institutions including Banque de Gestion Privée, National Westminster Bank and Crédit Lyonnais, specialising in leverage and structured finance. Joined ICG in 1994 to open the Paris office and then set up the Asia and North America businesses. Became a managing director of ICG in October 2005 and CEO in March 2010.

Favourite book: ‘Voyage au Bout de la Nuit’ by Céline

Favourite film: ‘The Night Of The Hunter’ (1955)

Hobbies: Terrible golfer, keen but modestly competent sailor, rugby fan and a father of three (almost) adults.

Favourite music: Eclectic, from early Baroque to soul and indie rock.

Typical day: Up at 6am, go for a run. In the office from 8.30am until 7.30pm. The day splits between internal investment and executive committees, meetings/lunches/calls with investors. Weekends are regularly ruined by reading various corporate papers.