The Asian Development Bank (ADB) has partnered with ADM Capital, a Hong Kong-based distressed debt manager, to launch the Asian Maculus Fund, a distressed debt fund that will invest in potentially viable, but financially distressed companies in Asia. The partnership fund has now been closed, after completing a capital raising of $138 million.
The ADB has invested $20 million into the new fund, whose investors include major US and European institutions. "This is the first tranche of what is expected to be a total fund raising of $500 million," says Chris Botsford, principal at ADM Capital.
The Maculus Fund is a five-year closed end fund that is expected to return between 25-30% per annum, a higher target return than ADM's flagship Galleus fund, which stands at over $300 million and has been returning 18% per annum.
"The lock up gives us the flexibility to look at a wider domain of opportunities and get into more structured situations with smaller companies. These opportunities are less well known and therefore less competitive," explains Botsford.
For the ADB, the Maculus Fund serves the twin objectives of achieving an attractive return on capital while also pursuing its social and developmental agenda. "The fund's core objective aligns with ADB's strategy of promoting poverty reduction through job creation and preservation, infrastructure preservation and development, banking reform and corporate governance," says Robert Bestani, ADB's director general for the private sector operations department.
While the ADB will sit on the advisory board for the new fund, investment decisions will be made by ADM Capital. Botsford explains that the fund will invest in businesses where the underlying business is strong, but where there is a clear need for financial assistance.
He adds that the fund will not invest in industries the ADB does not feel comfortable with, such as those that pursue environmentally damaging activities, but it will otherwise pursue commercial and diversification objectives. The new fund will have a strong bias towards the developing countries in Asia with at least 85% of the fund's portfolio going to China, Indian, Indonesia, Malaysia, Thailand and the Philippines, rather than the newly industrialized Asian countries.
"We're very excited about opportunities in the Southeast Asian region, which we believe to harbour the equivalent of over $800 billion in non-performing loans," says Botsford.
ADB's Bestani explains, "Companies will have the chance to regain their operational viability, sustain their economic contribution to their markets and lessen the adverse impacts for stakeholders such as employees."
William Willm, principal investment officer at the ADB, notes this is the second distressed debt fund the ADB has invested in. "We're also invested in a China-focused real estate fund managed by Colony Capital," he adds.