Asset owners and managers are increasingly looking eastward from Europe and the US to Asia in search of returns from direct lending, special situations and distressed debt opportunities.
There are a growing number of alternative investment firms expanding into private credit in Asia. There are also now new managers being set up from scratch by regional veterans to tap opportunities.
Zerobridge Partners is one example. It received its capital markets licence from the Hong Kong regulator on May 29 and hopes to gain approval to conduct asset management business in the coming few weeks.
The Hong Kong-based private debt manager is looking to raise $350 million for its first credit opportunities strategy, with a hard cap of $500 million. It aims to invest in ticket sizes of $20 million-plus and to deliver unlevered returns of 12% to 14% .
“We are having serious discussions about seeding the fund,” founder and managing partner Rahul Kotwal said, speaking this month from New York, where he and other Zerobridge executives were in pre-marketing discussions with potential investors and partners.
These include development banks, pension funds and other prospective seeders, as well as asset managers with a view to forming distribution tie-ups.
Kotwal said he saw growing demand from investors to diversify away from the well-bid and crowded US direct lending market. German insurer Allianz and sovereign wealth fund Abu Dhabi Investment Authority are among those looking to tap such opportunities in Asia.
Originally founded in late 2017, Zerobridge has been working on getting the initial leadership team in place and building a deal pipeline.
The firm is now in buildout mode, with a view to expanding its headcount from 10 currently to around 25-30 in the next 18 months, said Kotwal, who formerly worked at UBS as Asia ex-Japan head of leveraged capital markets and Asia-Pacific head of special situations.
More than half of the overall team will be investment staff, he added.
The firm has just hired a chief technology officer, who will start on August 1, but the firm is declining to identify the individual just yet. It also expects to add a managing director of capital markets soon to help with deal structuring. Last September, Michael Marquardt joined as chief operating officer, having previously worked for 17 years as BlackRock’s Asia-Pacific COO.
Zerobridge’s aim is to build a platform that will attract heavyweight asset owners such as Japan’s huge Government Pension Investment Fund, which is now eyeing an allocation to private debt.
As for investment targets, Zerobridge will be focusing on Greater China, India and Southeast Asia, above all on privately negotiated deals, although it will consider secondary investments in traded debt.
“A lot of the exuberance about China and India is around the secondary distressed or non-performing loan market,” Kotwal said. “But that’s not where we want to spend our time.”
He sees greater opportunities in lending to middle-market companies that struggle to get financing from the large banks for purposes such as growth, refinancing or corporate acquisitions. Alongside its clients, the leadership team at Zerobridge will invest at least 1% of their aggregate commitments to the fund.
However, a big challenge in Asia is sourcing deals for deploying the capital, Kotwal noted. Unlike Europe and the US, the region does not have a developed network of broker-dealers working with corporates that need capital and structuring deals to take to prospective lenders.
Hence, most asset managers service their clients in Asia directly and don’t really have sufficient deal flow to allow them to deploy funds efficiently, Kotwal said.
Zerobridge certainly won’t be short of competition, but it does boast deep experierence of Asia.