M&G sees rapid 2nd close for UK midcap loan fund

* Tardy pension funds leave 600 million stg in pipeline

* Major insurers lined up to participate

* M&G sees 3-5 bln stg capacity, 2 bln "not enough"

LONDON, July 10 (Reuters) - M&G, the asset management arm of Prudential (PRU.L), is planning a second closing within two months for a fund making loans to smaller companies, after a first fund raising pulled in over 1 billion pounds ($1.63 billion). Bernard Abrahamsen, director of fixed income at M&G, told Reuters the fund manager had received indicative interest for a further 600 million pounds from pension schemes.

"The decision making of pension funds is not as quick as it should be. The second closing is likely to be in a month's time - a number of funds missed out on this closing.

"There's healthy interest... We are confident of reaching the 2 billion pound mark," Abrahamsen said.

In December 2008, Reuters revealed that M&G was rallying pension schemes to back a fund of more the 2 billion pounds to lend to financially sound companies struggling to raise money from banks caught up in the credit crisis [ID:nL8222772].

The fund was originally planned to launch in the first quarter of 2009, but M&G only formally launched the fund this week.

At the time of the original Reuters report, sources close to the plans said M&G was hoping to involve fellow asset managers as well as pension schemes, and Abrahamsen confirmed M&G was still in talks with large players.

"We spoke to another major insurance company [on Thursday]. There is interest but it's taking longer than anticipated."

The fund will offer mid-cap companies capital in the form of a bond with a minimum term of five years. In return, investors will receive an attractive rate of interest and a senior position alongside banks in the borrowing companies' capital structure.

"In terms of scaleability, the fund can grow to 3-5 billion pounds. Relative to the requirements of UK plc, we think 2 billion pounds is not enough," Abrahamsen said.

Among the local authorities that have already committed money to the fund is the West Midlands Pension Fund. M&G's parent, insurer Prudential (PRU.L) has also committed 500 million pounds from its life fund.

The Daily Telegraph reported that the fund had been welcomed by British finance minister Alistair Darling as "a useful step in the right direction". ($1=.6150 Pound) (Reporting by Raji Menon; Editing by Joel Dimmock and Hans Peters) (For the Hedge Hub blog: blogs.reuters.com/hedgehub) (For Global Investing: here))