Hong Kong-based Myo Capital is to launch Myo Capital Special Situations Fund I with a commitment of up to $150 million from DBS Bank. The Singaporean bank will take a minority stake in the alternative investment firm, which will become an affiliate of DBS.

"We believe DBS will bring significant value to the venture, especially in the sourcing and origination of deals," says Myo founder Justin Ferrier.

The fund will be open to external investors and has a target size of $300 million. It has been structured as a closed-end private-equity structure with a three-year investment period followed by a three-year divestment period. Target annual returns are 20-25% with an 8% preferred return to investors.

Ferrier founded Myo Capital in 2007 with Geoff Lee, a former colleague at Peregrine Capital. Geoff Lee has six years' special-situations and mezzanine-debt investing experience with CLSA Capital Partners and HSBC Alternative Proprietary Investments.  

Distressed investing has been through a period of re-adjustment as investors have delineated between liquid and illiquid investments. Distressed investment is now firmly categorised as illiquid, and the idea of quarterly redemptions on that strategy is long gone.

Myo's first fund was focused on traded credit, distressed assets and special situations. The new fund dispenses with the traded credit segment and concentrates on the latter two.

The fund will initially focus on senior debt and may then expand into other areas of the capital structure. In terms of distressed debt, it will invest in public bonds, non-performing loans and leveraged loans, and on the special-situations side, it will look for both primary and secondary financing opportunities. Exits will come from cashflow, refinancing, asset sales and debt sales.

Myo sees opportunities, given that there are still few buyers with capital due to the absence of formerly active prop desks and hedge funds. "Everyone, everywhere got hit during the crisis and there are good companies that need new capital to recuperate," says Lee. "However, the number of buyers has shrunk tremendously as capital was destroyed or repatriated. This imbalance has generated opportunities that did not exist pre-crisis."

The primary countries of focus for investments will be Australia, China and Indonesia, and less efficient markets such as Malaysia, the Philippines and Thailand. Typical deal size will be $10 million to $25 million.

DBS is Southeast Asia's largest banking group, with a $23 billion market capitalisation, and is 28% owned by Temasek, one of the Singapore government's investment arms.