Ireland to permit hedgefund loansto companies

Ireland, one of the biggest hubs for funds in Europe, will allow hedgefunds based here to lend to companies under new rules drawn up by the Central Bank, it said.

With banks in the rest of Europe still reducing lending to households and corporations after the recession, firms which are too small to issue bonds are increasingly seeking to borrow from other sources such as insurers, private equity firms and hedgefunds.

Ireland has traditionally prevented hedgefunds domiciled here from lending because regulators viewed it as too risky. But with access to credit a growing problem in Europe, the Central Bank has drawn up regulations that will allow specialised loan funds it authorises to extend loans internationally. The bank issued a consultation paper on the rules yesterday and expects them to be in place by December.

“This is a sector that should be subject to some additional regulation. If you have loan-origination funds operating out of Ireland and lending into other countries there are potential cross- border issues,” said Martin Moloney, head of markets policy at the bank.

The Central Bank is drawing heavily on new regulations devised to prevent a repeat of the banking crisis to regulate funds which lend money.

Under the rules, a loan fund will not be able to lend more than a quarter of its assets to one borrower and the amount of debt the fund can take on will be capped at a ratio of 1 to 1, meaning that if a fund has assets of €100m it can borrow another €100m.