UPDATE 2-Insurer Legal & General offers funding boost for smaller European companies

Thu Jul 17, 2014 7:50am EDT

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* To invest an initial 250 mln euros

* Plans further "significant commitments"

* To target companies worth 200 mln euros-1 bln euros (Adds background, detail, quote)

By Simon Jessop

LONDON, July 17 (Reuters) - British insurer Legal & General (L&G) plans to start lending direct to businesses across Europe, offering a much-needed boost to small and mid-sized companies starved of credit from the banking system.

It joins peers such as French-listed AXA and Germany's Allianz in filling the gap left by cash-strapped banks, creating a so-called shadow banking system to boost income during a period of sustained low interest rates.

L&G said on Thursday that it had subscribed for a 40 percent equity stake in Pemberton, an alternatve asset management firm that is launching a new direct lending platform to provide loans and private placements to mid-market companies.

The service will focus on companies with turnover of between 100 million euros ($135 million) and 1 billion euros. L&G, which invests 463 billion pounds worldwide, said it would invest an initial 250 million euros with the intention of making further "significant commitments".

"The UK and Europe have been too dependent on bank financing, and this impacts particularly on businesses wishing to invest and expand," Paul Stanworth, managing director of Legal & General Capital, said in a statement.

NEW ASSET CLASS

"Creating a new channel to deploy longer-dated institutional money in the mid-market sector will help drive economic recovery at a time when bank balance sheets are constrained, as well as creating a further asset class for direct investments by insurance companies and other institutions."

Loans will be made using Pemberton's on-the-ground presence in various European markets and its network of regional bank relationships, the statement said.

"Through our platform, we will enable the mid-market to access funds from established institutional investors at a time when the number of loans available from banks is in decline," said Symon Drake-Brockman, managing partner at Pemberton.

AXA and other French businesses, including fund managers such as Amundi, have taken advantage of government help to boost the fledgeling industry.

The move to direct lending in companies by 178-year-old L&G follows sharp growth in its spending on building infrastructure and housing in Britain, another much-hyped avenue for higher returns as governments struggle to fund such investments.

L&G's current investment in infrastructure and housing stands at 4 billion pounds, it said. ($1 = 0.7390 Euros) (Editing by David Goodman)

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