World bank to invest in new hedge fund

LONDON (Reuters) - The World Bank is investing in a hedge fund in order to help banks reduce capital that new rules will force them to set aside against loans to small companies in emerging markets, the Financial Times reported on Monday.

The International Finance Corp, the World Bank's private-sector lending arm, is putting $100 million into a new fund being set up by Christofferson Robb & Co, which is based in London and New York.

The firm's New York founders are raising another $300 million (189 million pounds) from private investors.

The hedge fund will put up cash to cover unexpected loan losses in return for a cut from a bank. The fund's cash will lower the bank's requirements under the Basel rules and reduce the impact of planned tighter rules

The FT said the IFC fund will operate mainly with big international banks and will encourage an extra $2.5 billion to $4 billion of lending to developing countries.

Involved banks will be required to recycle the money freed by the "bilateral synthetic capital release securities" that the fund creates back into developing markets.

(Reporting by Stephen Mangan; Editing by Leslie Adler)