The job creation potential as hedge funds fill the lending void

If more hedge funds step up to provide direct lending to European businesses there's likely to be a healthy amount of recruitment opportunities, including for those with private equity expertise.

The potential for hedge funds to start lending directly to SMEs was highlighted recently by Standard & Poors (via Financial News).

In Europe, it's still rare for hedge funds to do this. But one firm to offer direct lending through a dedicated fund is BLM Partners, which is near to closing its €250m European Opportunities Fund, run by Jason Carley and his team hired from BlueMountain Capital Management (a credit fund management group).

There's also Haymarket Financial, which offers direct lending as well as investment management services.

Dedicated direct lending funds might be uncommon in Europe, but a number of high-profile firms offer these services, usually within multi-strategy or a master fund, says one hedge fund manager with expertise in this area.

The loan assessment experience gained in commercial banking therefore seems like an obvious target for expertise. But hedge funds are unlikely to be interested.

Banks typically have existing relationships with the companies they lend to, and don't go into the same level of depth in terms of fundamental and credit analysis as a direct lending hedge fund strategy, suggests the hedge fund manager.

Hedge funds would also expect rights within the company - a place on the board, for example - the debt would be a lot longer term, and they might expect the loan repayment as shares or other securities, rather than simply cash.

"In terms of sourcing talent, hedge funds would look to the principal investment desks or special situations group of investment banks or another market strategy such as distressed debt, multi-strategy or credit," he says. "They'd need to be investment experts, with an understanding of both equity and debt analysis, be able to look at cross-capital structure, write investment theses and build investment models."

Unfortunately, job opportunities are not currently plentiful. This may change, but traditionally European companies have been generally wary of taking loans from hedge funds, which demand a higher rate of interest than banks and greater stake in the company.

In the US, it's more common. FrontPoint Partners, for example, recruited an investment team to focus on lending to small and medium-sized firms earlier this year.

"We've heard anecdotally that a number of firms are seeking to move into this area, but this has yet to result in specific job opportunities," says Barry Heath, managing director of hedge fund specialist Mirage Recruitment.