3 Degrees Asset Management, a Singapore-based distressed-debt fund manager, has launched a credit opportunities fund with assets of $27.3 million.
The 3 Degrees Credit Opportunities Fund (3DCO) will invest in the performing-debt obligations of Asian borrowers, focusing mainly on senior secured bank loans, as well as receivables, private placements, high yield and convertible bonds.
The fund seeks 20% or more in annual net return, does not intend to use leverage and will provide a high level of transparency to investors, says 3 Degrees, which has $300 million in assets under management.
"3DCO will capitalise on the systemic inefficiencies endemic to Asian credit markets," says Moe Ibrahim, founder of 3 Degrees and portfolio manager of 3DCO in Singapore. Southeast Asia offers the greatest potential, he says, because that is "where inefficiencies are at their greatest".
"With over $20 trillion of debt on the balance sheets of Asian commercial banks, the opportunity set is large and growing rapidly," adds Ibrahim. "Moreover, with only a handful of secondary-market participants, there is no need to crowd into trades. We will cherry-pick opportunities to ensure maximum return, adequate liquidity and downside protection for our investors."
3DCO ultimately targets $500 million in assets under management, Ibrahim tells AsianInvestor. He expects the principal investors to be family offices and institutional investors.
There has been increased interest in the distressed and special-situations sector in the past year or so in the form of new start-ups such as SC Lowy, ramping up by established firms such as Pacific Alliance and even moves from atypical players in the sector.
Presumably this has resulted in fewer opportunities in distressed assets? Not for 3 Degrees, says Ibrahim. "We have no issues with deal flow and see very little competition," he says, adding that rival firms tend to source supply from the dealers, rather than direct from the source, commercial banks.
There is a pipeline of current deals for the new fund, says Ibrahim, but he would not reveal any names. He has been investing in Asian loans since 1999 and cites examples of past deals such as purchases of loans from Thai furniture maker Siam Steel, Bhote Koshi Power in Nepal, the Philippines' Maynilad Water and Indonesian pharmaceutical company Kalbe Farma.
3 Degrees has been operating the strategy via its managed-accounts platform since June, returning an annualised 28%, net of fees and without leverage. Clients can continue to invest through a customised solution, such as a managed account, or through the new fund.
3DCO will target companies that generate enough cash flow to repay maturing debt without dependence on additional fundraising exercises. The fund expects to limit volatility by keeping average duration below 24 months and targeting events such as puts and calls, as well as working with companies to conduct debt buy-backs and tenders.
The fund has a two-year lock-up and a 1.5% management/20% performance fee structure. Deutsche Bank is the administrator and custodian and BDO is the auditor.