independent

Wednesday 16 April 2014

NPRF joins up with 'vulture funds' to help rescue SMEs

The National Pension Reserve Fund (NPRF) has teamed up with international "vulture funds" to buy up struggling businesses and, it is hoped, return them to viability.

The joint venture with "turnaround" specialist Better Capital is one of three new initiatives that will see the NPRF pump €500m of the €14bn it manages into helping stabilise small- and medium-sized enterprises (SMEs), with loans and investment.

A further €350m is being provided by international investors as part of the same initiative.

UK-based Jon Moulton's Better Capital has teamed up to create a new €100m SME Turnaround Fund, financed 50:50 with the NPRF, to buy companies that are on the point of collapse but have the potential to be restructured.

Owners will lose control of their companies under the deals, but it's hoped that jobs and ultimately profitability can be secured.

The SME initiative was announced at a press conference in Dublin where the National Treasury Management Agency (NTMA), which controls the NPRF, published its annual business review for 2012.

At the same event the head of the NTMA, John Corrigan, said the next sale of €500m of short-term government bonds would go ahead on January 17, in a now regular rollover of three- month borrowing.

Finance Minister Michael Noonan welcomed the move, and said he plans to move ahead with legal changes that will help divert more of the €14bn managed by the NPRF to supporting the domestic economy.

There has been broad support for the SME initiative from business leaders.

The head of the Irish Small and Medium Enterprises Association (ISME) said it was happening because of the absence of traditional lending.

Breach

"This is a kick in the pants for the banks, they are not lending and the Government is having to move into the breach," Mark Fielding said.

The €14bn NPRF is part if the National Treasury Management Agency (NTMA).

It was set up by former finance minister Charlie McCreevey to set aside and manage cash for the State's future pension needs.

Since the financial crisis, however, a significant share of the money held in the fund has been used to bail out banks, resulting in steep losses.

Unlike the billions pumped into the banks by the fund, the new funds are to be invested on a commercial basis, and at the discretion of money managers at the NPRF.

Three new funds were announced yesterday. In addition to the Better Capital managed fund, a second new vehicle, dubbed the SME Credit Fund, is being established to lend to larger SMEs that are struggling to borrow from the banks, in particular companies hit when their lender has pulled out of Ireland.

The €450m Credit Fund will be run by BlueBay Asset Management, with the State investing at least €175m.

The third fund is an SME Equity Fund of €300m to €350m, including €125m of state money. It's being set up in conjunction with Carlyle Cardinal Ireland, a joint venture between Irish firm Cardinal Capital and Carlyle, a global private equity giant that has included former US president George Bush Snr and former British prime minister John Major as senior figures.

The SME Equity Fund will invest in equity in healthier companies, including those with too much debt.

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