The two-year loan facility is intended to finance all the fees, set-up costs and legal expenses of Encore Ventures’ first fund Encore 1, which was established to manage the portfolio of early-stage investments acquired from 3i in October last year for £170 million.

The rationale behind the loan is to ensure that any capital drawn is used to buy assets rather than cover transaction costs, thus enhancing returns. Simon Hamilton, a partner at Investec, says the facility has ‘significantly improved the cash-on-cash return of the fund’.

Adds Hamilton, ‘We continue to see a move by leading [private equity investors and fund managers] in looking at ways they can maximise their returns by using the fund’s balance sheet.’

Typically, such loans to private equity funds are greater than £3 million and are structured against the investments in the fund, the management company’s cash flows or investor commitments.