Hedge Funds Increase Financing for SMEs, Finds AIMA

Hedge funds have increased their financing role for small and medium-sized enterprises (SMEs), at a time where banks are increasingly cutting smaller, less profitable clients.

A new paper published by the Alternative Investment Management Association (AIMA) found that private debt funds, such as hedge funds, now manage around $440 billion in assets, with some $64 billion of new capital allocated to the sector in 2014 alone.

The bulk of this capital has been used to finance SMEs, in which 95% of fund managers surveyed said they provided financing for acquisition or expansion at SMEs, according to AIMA.

This has predominantly involved U.S.-based funds, however European and Asian funds have grown significantly in prominence since the financial crisis, the paper says.

“Buoyed by both increased demand from investors as well as a growing appetite from businesses for alternative sources of funding, these markets are starting to have a noticeable impact on economic activity,” says Stuart Fiertz, president of Cheyne Capital.

The findings from AIMA comes as a number of major prime brokers are reviewing their relationships with clients, cutting the smaller, less profitable clients in the face of increased capital pressures from Basel III.

Bank of America, Credit Suisse, Deutsche Bank and Goldman Sachs have already began shrinking their client base.

“Many small and medium sized businesses would miss out on growth opportunities or fail altogether if it were not for the absolutely vital support of hedge funds and other alternative asset managers,” adds Jack Inglis, CEO, AIMA.