The IMN-ELFA Investors’ Conference attracted some 300 investors, commercial finance issuers, industry leaders and service providers who descended on the exclusive Union League Club in New York City March 22 to network and take the pulse of this now $1.5 trillion U.S. lending and leasing market that funds equipment, plants, software and services.
In opening remarks, Andrea Petro, executive vice president of Wells Fargo, a lead event sponsor, noted some near-term expectations including:
o Rising interest rates
o Government-driven infrastructure investment
o Small-business confidence fueling growth
o Competition from marketplace lenders
o Technological changes continuing as major disruptors
o Growing interest in renewable or green investing
ELFA Chairman Anthony Cracchiolo, the president and CEO of
U.S. Bank Equipment Finance, echoed Petro with enthusiasm for the current state of the industry and the outlook. He advised keeping an eye on economic indicators, more so than the daily news, when assessing conditions.
He said the association’s data is best the trade group has seen since it began tracking industry numbers. The industry is looking forward to regulatory and tax relief for its members, and there are even glimmers that the mining sector may improve. Overall, confidence is very high, he stated.
Bruce Kropschot, a consultant with The Alta Group and well-known M&A advisor, said attendees this year seemed “cautiously optimistic,” with “uncertainty about whether proposed regulatory and tax relief will happen.” He also noted that there are concerns about lower industry volume in 2016 and intense competition.
The first panel session on Capital Markets, moderated by Stewart Hayes, senior vice president of Wells Fargo Capital Finance, featured speakers representing AmurEF, EverBank, LEAF Commercial Capital, DBRS and Alta. They, too, expressed optimism, but also discussed such risks as continuing spread compression and the impact of a possible increase in delinquencies and charge-offs.
Alta’s CEO John Deane noted a strong M&A market in 2016, suggesting this has been a favored way for some companies to grow and that the trend is continuing. He pointed to the major deals completed last year, which were summarized in an chart created for his presentation and available online.
Deane also highlighted the growing trend of managed solutions transactions (MSTs), which are not alike, and pose new risks and the need for a fresh look at business practices. He noted the consultancy is beginning to see some usage-based models. The consultancy expects MSTs will generate more than 22 percent of leasing industry volumes in the next three to five years per its research study, Managed Solutions: Evolutionary or Revolutionary? completed in 2016 for the U.S. industry’s foundation.
He said there seems to be less interest in business development abroad, but there are foreign enterprises seeking opportunity in America, particularly from Asia-Pacific.
Several niche sectors were covered in afternoon panels, ranging from green energy to air finance, but sessions on potential regulatory relief and investor appetite for securitization attracted greater audiences. Outside of the sessions there were discussions about tax reform and the concern that if the U.S. Congress failed to gain consensus on a new healthcare plan, it wouldn’t bode well for significant change to current tax laws.
While the industry may be hopeful about potential regulatory relief from an administration considered pro-business in Washington, D.C., there are rising issues at state levels. A new California Senate bill extending license requirements to intermediaries and referring brokers, and a proposed New York law on cybersecurity with burdensome overreach, were two of the issues mentioned.
At the federal level there is hope that Dodd-Frank, section 1071, will be repealed, with the best outcome being more small business lending by banks.
Also noted was an Office of the Comptroller of Currency (OCC) charter for evaluating lending applications from fintechs, which provides a universal framework rather than leaving the matter open to each state.
More than one speaker said fintechs are here to stay because they are filling a sizeable void left by the banks, which are unable to process loans as quickly or due to regulatory constraints. Even if banks don’t currently see fintechs as competition today, some of these alternative finance companies will eventually become capable of moving into middle-market business.
Michael Gregory, deputy chief economist & head of U.S. economics for BMO Capital Markets, a keynote speaker, said some of the business benefits anticipated from the new administration may emerge in bits like President Trump’s short tweets. He said domestic growth may only reach 2.5 percent because of declining exports.
He also elaborated on the increasing influence of global economic fluctuations and the reliance on consumer spending to affect the GDP.
The industry remains attractive to investors. It proved its resilience in tough times and the investors whose portfolios are heavy in consumer or retail finance appreciate the diversification that equipment finance issuers bring — the assurance of underlying business-essential assets and past performance records.
The need to provide transparency was noted more than once and Stephen Ceurvorst, managing partner of Lord Capital, quipped, “In God we Trust, all others bring data.” He was speaking on a concluding panel of institutional investors with representatives from BMO Capital Markets, Colford Capital Holding LLC, Metlife, and Lovell Minnick Partners.
This was the 16th annual investor’s conference, which is always held in New York City in March. It attracts many familiar industry leaders, representing equipment leasing and finance firms, private equity firms, hedge funds, investment banks, and insurance companies interested in acquiring or investing in the equity or debt of commercial asset finance firms. The event is organized by the IMN in partnership with the ELFA.