Start-ups express concern as second tranche of BFP funding nears

 As the second round of funding by the UK government’s Business Finance Partnership approaches, some managers have criticised the decision to fund established, rather than fledgling managers, in the first round. 

Several unsuccessful applicants for funding from the UK’s Business Finance Partnership (BFP) scheme have raised concerns that the HM Treasury’s choice of recipient runs contrary to its aim of developing the market for non-bank lending to UK businesses. 

The first tranche of investments, announced in December 2012, awarded £700 million (€817 million; $1.1 billion) to some of the world’s largest asset managers. Of the six managers named, Haymarket Financial stood out as the only UK-listed asset manager, with the rest being global managers who have a presence in the UK. They were: Alcentra, Pricoa Capital, Ares Asset Management and M&G Investment Management. All are established firms raising capital for the latest in a long string of funds.

Successful applicants for the second round of funding are likely to be informed of their funding grants next month, sources said.

The BFP aims to increase the provision of affordable credit, to small businesses in the UK who may not have access to the same range of funding options as their larger counterparts.

A spokeswoman for the UK Treasury told Private Debt Investor: “The key aim of the BFP has been to attract new private investment into non-bank lending to mid-sized businesses.”

However, the Treasury noted it would only select managers with a proven track record, demonstrating their ability to manage funds. Unsurprisingly, the requirement (for a proven track record) meant most newly-formed managers who sought funding were deemed unsuitable, and consequently ruled out.

“The way in which the incentive has been executed is somewhat sub-optimal,” said one partner at a UK-based asset manager, whose application for funding was rejected by the HM Treasury. “It is a reflection of the lack of consensus between those who worked in the formation of the policy and those who executed it.”

He isn’t alone. “The BFP has been poorly implemented, and on the whole, [commitments] have gone to managers who are absolutely least deserving of public funding,” said another unsuccessful, UK-based debt fund manager. “The incentive slowly went from being about fostering the burgeoning debt market by assisting new managers, to making sustained profits from the funds managed by some of the largest asset managers in the world.”

In its defense, HMT’s spokeswoman explained it was reaching out to institutions who were best equipped to stimulate and support the development of a non-bank channel of credit providers to UK middle market companies.   

For further analysis of the Business Finance Partnership, read the April edition of Private Debt Investor magazine.