A: Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. Hedge funds are making asset-based financing available for numerous transactions, including loans to other hedge funds and private equity funds, venture capital, real estate, and small and large businesses.Alternative lenders and hedge funds are acting as hard-money lenders of last resort to hundreds of businesses in need of financing as banks and traditional lenders refuse to lend. The largest of these de facto lenders are hedge funds. Though the pool of such funds that currently lend is small, greater retraction by banks promises to increase the number of funds that will lend.
The shutdown of lending by conventional lending firms has also allowed hedge funds to lend on terms favorable to their profit. These funds are getting good loan-to-value ratios, a potential equity upside that is attractive and high coupons. Their current cash pay coupons are exceeding 10%.
Hedge funds are also joining the lending effort to fill the void left by traditional lenders, aiming to prevent a total collapse of economic structure in the United States and around the world. Ben Shoval, the managing director of Ambit Funding, noted that hedge funds are essentially filling the vital role in the credit market that traditional lenders have left vacant.
Why Hedge Funds Lend
These funds generally view lending as a strategy for portfolio diversification and a way to gain double-digit returns. The interest rates that most of these funds charge are nearly double those of conventional lenders.The shutdown of lending by conventional lending firms has also allowed hedge funds to lend on terms favorable to their profit. These funds are getting good loan-to-value ratios, a potential equity upside that is attractive and high coupons. Their current cash pay coupons are exceeding 10%.
Hedge funds are also joining the lending effort to fill the void left by traditional lenders, aiming to prevent a total collapse of economic structure in the United States and around the world. Ben Shoval, the managing director of Ambit Funding, noted that hedge funds are essentially filling the vital role in the credit market that traditional lenders have left vacant.
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