The Greater Manchester and Strathclyde local authority funds are backing a £350m (€460m) UK direct lending fund launched by Muzinich & Co.

The fund has attracted the backing of four UK pension funds, including the two largest UK local authority funds, and a £30m investment from the British Business Bank, the government-owned lender.

It is understood the manager attracted £185m as part of its first close, more than half of its £350m target.

The fund will be run from London and Manchester, a recognition that more than half of private direct lending opportunities were located outside the South East of England, according to Muzinich managing director Josh Hughes.

Kieran Quinn, chair of the Greater Manchester Pension Fund, said the current market environment meant private debt offered attractive target returns, while noting that the closed-end structure of the fund reduced risk.

“But of course, in private debt, strong bottom-up credit analysis is essential, and this is an area in which we expect Muzinich to deliver,” Quinn added.

In addition to the £30m provided by the British Business Bank, Strathclyde Pension Fund committed £20m last year.

The investment will sit within the Scottish local authority scheme’s £412m New Opportunities Portfolio, which also includes exposure to renewable energy

According to a report prepared for Strathclyde’s pensions committee in June last year, the scheme was attracted to the Muzinich UK Debt Fund as the manager itself had invested capital, while also extending a £20m line of credit to allow the fund to invest prior to the first close.

Greater Manchester has been growing its exposure to SME lending in recent months, joining the South Yorkshire Pensions Authority and Clwyd Pension Fund to invest in a Foresight Group venture targeting companies in the North West of England.

The North Yorkshire Pension Fund has also expressed an interest in the asset class, recently tendering a mandate worth up to £130m in an attempt to “get more out of [its] fixed income allocation”, according to Tom Morrison, its head of commercial and investments.