The £9bn Merseyside Pension Fund (MPF) has pledged £30m of scheme assets to a private direct lending fund designed to support small businesses and the UK economy.
Launched today (24 June) by small business loans platform Funding Circle, the fund aims to improve opportunities for institutional investors to lend directly to small and medium-sized enterprises (SMEs) which in turn can provide attractive risk-adjusted returns.
The £30m commitment to the Funding Circle UK SME Direct Lending Fund I is expected to support 430 small businesses across the UK, and will operate as an eight-year, closed-ended structure targeting annualised net returns of 5.5% to 6.5%.
MPF senior portfolio manager Linda Desforges said: "We view Funding Circle as the preeminent operator in the platform lending space and we are pleased that, through their infrastructure, we can support small businesses while earning a good level of income for the pension fund."
Funding Circle said businesses with fewer than 250 employees provide around 50% of the UK's gross domestic product, yet tend to be largely ignored by traditional direct lending funds. It said this fund would leverage technology and advance data analytics in order to support the real economy.
Its chief capital officer, Sachin Patel, said: "Today's announcement is further validation of the important role that lending platforms play in making the SME loan asset class accessible to a wide range of investors.
"Through our latest UK economic impact fund, investors can contribute to economic growth and job creation by supporting small businesses, while earning attractive, stable returns as a result. We welcome the opportunity to work with the MPF as the lead investor and we look forward to welcoming more investors in the near future."
The MPF is part of the £46bn Northern Local Government Pension Scheme (LGPS) pool, and provides benefits for local government employees in the Liverpool city region.
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