Can’t invest in them? Join ’em. That’s the sentiment of some hedge funds when it comes to loans. While hedge funds have traditionally been the investors of corporate loans, the credit environment has spurred some to take on the role of lender as well.
Hedge funds with cash reserves are issuing loans to small to mid-sized companies based on their collateralized assets, a practice known as asset-based lending. The borrowers can access capital based on assets like accounts receivable, inventory, equipment or real estate.
The asset based lending market has been on the rise over the past few decades, and saw 11% growth in 2007 reaching $545 billion in outstanding loans according to the Commercial Finance Association (CFA), the industry trade organization. Asset-based lenders can range from large corporate banks such as Wachovia, to boutique vertical lenders, and more recently Hedge Funds.