Corporate turn to hedge fund for help

An unprecedented cash crunch is limiting the ability of banks to lend. Banks have been scrambling for capital to offset losses from bad mortgages and other investments at the same time as both credit and stock investors have been hesitant to back the companies. Companies that have relied on bank borrowing to grow, or even maintain their business, are turning to hedge funds in a move that some say may signal a broad shift of lending from banks to asset managers.

It dose not mean that those hedge funds are becoming banks, but they’re going to provide the functionality and interface with people looking for capital, like the investment banks used to, but with an asset management balance sheet approach.

Some hedge funds began lending directly to companies earlier this year, focusing on making loans that are secured against cash flows. Most recently, some funds even arranged a financing package for the purchase of two ships that will be leased to a unit of Mexican state-owned oil company Petroleos Mexicanos, or Pemex.

The U.S. government has scrambled for ways to shore up the financial sector, including a plan to pump $250 billion into institutions in exchange for equity stakes early this week. Even when the financial sector does finally stabilize, however, banks ability to lend will remain constrained relative to recent years. The capital constraints on banks are opening up opportunities for those hedge funds, who can take leveraged credit assets and loans from bank balance sheets.