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Market volatility paves way for hedge funds to lend to SMEs, says manager


Date: Tuesday, November 15, 2011
Author: Charles Gubert

Hedge funds, which lend to small to medium sized enterprises (SMEs) can continue to thrive despite the market volatility, one manager has said.

“Banks are not lending despite what they say to the media. This is presenting an opportunity for a niche group of hedge funds to fill the void, especially in the current market environment” said Robert Press, founder and chief investment officer at Trafalgar Capital Advisors, which manages the TCA Global Credit Master Fund – a fund focused on short-term senior secured debt transactions and advisory services to listed SMEs.

Ben Bernanke, chairman of the Federal Reserve, recently told banks to ease their restrictive lending practices towards small, credit worthy businesses. UK-based banks have been urged by the government to meet the lending targets outlined in Project Merlin. The four banks signed up to Project Merlin – Barclays, Lloyds, HSBC and the Royal Bank of Scotland – increased lending from £53 billion in the second quarter to £57.4 billion last quarter, according to figures from the Bank of England. The banks’ claims they are meeting these targets have, however, been disputed by some SMEs.

“There are a lot of alternative asset management firms out there focused specific sectors who can bridge the funding gap. We use short-term duration debt and collateral to help small businesses. A lot of small businesses sometimes need advice and might not have the best advisors and part of our role is to help them in that respect. A lot of firms are increasingly coming to organisations like ours because they cannot secure funding from banks. It also means a lot of higher quality businesses are coming our way,” said Press.

Nevertheless, Trafalgar is careful not to invest capital in jurisdictions where credit laws are overly complicated or non-existent such as parts of Southern Europe and the BRICs. “We only invest in SMEs in countries where the credit laws are solid,” highlighted Press.

Furthermore, many people are sceptical about hedge funds lending to SMEs. “It is difficult to deny hedge funds have a publicity problem. Yes – we are there to make money by lending to SMEs but we bring a lot of benefits to these businesses. By lending to SMEs, we create jobs and potentially successful businesses – it is a social good,” acknowledged Press.