Monday 18 December 2017

Hedge funds offer hope to companies starved of finance

Jobs minister Richard Bruton
Jobs minister Richard Bruton
Donal O'Donovan

Donal O'Donovan

CREDIT-starved Irish companies could be thrown an unlikely lifeline by hedge funds and pension managers.

An industry body that represents European hedge funds and other "non-bank" investors in corporate debt is considering ways to help its members lend directly to small and medium-sized companies.

The proposals have been put forward by London-based Loan Market Association (LMA).

The chief economist at employers group IBEC said Irish companies need to explore such new forms of financing.

"Irish companies have traditionally had an unusually high dependence on banks for almost all financing compared with the rest of Europe," Fergal O'Brien told the Irish Independent.

It left business particularly hard hit when the banking crisis led to a rapid drying up of credit, he said.

European Central Bank research shows one in five Irish company owners believes access to credit is the most pressing problem facing their business.

Jobs minister Richard Bruton is due to outline his proposals to help business access loans as part of a jobs strategy announcement today.

The Government has been looking at loan guarantee schemes as one way to kick-start lending.

The plans being considered by the funds involved with the LMA are in response to a request from the UK government, which is also concerned by the lack of credit for SMEs.


As the LMA is a Europe-wide body, Irish businesses stand to benefit from any new scheme it can develop. If "non-banks" can channel liquidity to industry, an added benefit means that taxpayers will not be asked to foot any of the bill, unlike the guarantee schemes.

The LMA represents pension funds, hedge funds and managers of collatoralised loan obligations -- complex structures that pool cash for investment in the debt markets.

Many LMA members are located in Ireland, including Dublin-based Avoca Capital, Harbourmaster Capital and Guggenheim Partners. They already lend to large companies.

Until now, these little-known funds relied on big banks to arrange such loans, only coming in as co-lenders once the financing deal was in place.

With banks in crisis, the funds are struggling to find deals to invest in -- as companies go without access to credit.

It its response to the UK government's request, the LMA said "non banks" could plug some of the loan market gap, especially for companies with turnovers of between £25m (€30m) and £500m.

The LMA said its members would be best able to provide relatively large loans over fixed periods.

Banks, it said, remain better set up to fund small businesses and to manage more relationship intensive loans,such as letters of credit and overdrafts -- even to bigger borrowers.

But freeing funds to lend to industry either directly or by buying pools of loans issued to small companies will take time. Experts say regulatory changes will be needed at both the EU and the domestic level before cash managed by the funds can start to flow to business.

Irish Independent

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