U.K.-based Absolute Return Partners has launched its fifth fund of funds, ARP Private Finance Fund, to take advantage of opportunities in the asset-based lending market.

Due to the current credit crisis and Basel II regulations, banks and other traditional lenders have pulled back from the loan market, according to the firm, leaving hedge funds free to take market share from these institutions and getting better security against loans made as well as higher yields.

And with only $12 billion out of a $400 billion market currently financed by hedge funds, there are plenty of opportunities for hedge funds to grow in this space.

“According to Hedgefund.net, who has tracked the ABL sector since 1989, returns are annualizing close to 12% with very low volatility and only one down month over the period,” said Niels Jensen, a senior partner at Absolute Return Partners. “Historically, economic down-turns have not had a meaningful impact on the returns as the managers will ensure a conservative loan-to-value against an asset with a defined market value.”

The firm plans to launch a leveraged version of the fund next month.