Pension fund flies to the rescue of SMEs

National Pension Reserve Fund’s move into SME finance fills a gap left by the departure of foreign players

With almost €1 billion in new funds to invest, the National Pension Reserve Fund’s foray into SME financing is good news for small businesses starved of funds.

But does it make sense for the NPRF, or its manager, the National Treasury Management Agency (NTMA), to be getting involved in banking; how can companies access the funds on offer and why are the managers running them so familiar?

Announced last Wednesday, the initiative will see some €850 million of funds flow towards the small- and medium-sized enterprise (SME) sector, and has thus far been warmly welcomed.

Mark Fielding, chief executive of representative association ISME, said the initiative will “address part of the Irish banking sector’s failure”, while Avine McNally, assistant director at the SFA, noted the funds “have the potential to deliver financing to support expansion and assist those firms that need to restructure for survival”.

So what’s on offer? And how can SMEs get their hands on it?

In total, €850 million will be made available, with the NPRF putting up €500 million. The investment will be divided three ways, with one fund, the SME Credit Fund, engaging in lending, and the other two offering financing via the acquisition of an equity stake.

The €450 million credit fund will be managed by fixed income specialist UK firm BlueBay Asset Management and it will lend to larger SMEs and mid-size corporates. Loan sizes will range from €5 million to €50 million, with an estimated average size of €15 million. The fund is expected to be operational by early in the second quarter of 2013.

Focus on investing

The SME Equity Fund will have a total size of between €300 million and €350 million, with commitment from the NPRF of €125 million. It will focus on investing in “healthy businesses seeking to grow, including those with over-leveraged balance sheets”. The fund, which has received commitments from other third-party investors, is already operational and is managed by Carlyle Cardinal Ireland. It will acquire stakes valued at between €2 million and €50 million.

Finally, the €100 million Turnaround Fund, which has a commitment of €50 million from the NPRF and will be managed by Better Capital, “will invest in under-performing businesses which are at or close to the point of insolvency but have the potential for financial and operational restructuring”. According to the NPRF, it’s likely that this fund will make a small number of investments in the tens of millions.