Money continues to pour into credit investments despite concerns that assets such as high yield and emerging-market debt may be in bubble territory.
A beneficiary is Hong Kong-based Double Haven Capital, which last month launched a $200 million long-only credit strategy under a managed account for a global reinsurance firm.
This new mandate and growth in the asset manager’s liquid bond long/short product – the Double Haven Asia Absolute Bond Fund – and other products has pushed its AUM past $415 million.
The Hong Kong-based credit specialist also expects to launch a new illiquid strategy focused on private lending and distressed positions early this year.
The new managed account will invest in Asian dollar-denominated corporate bonds, including Australian and Japanese issuers, says Darryl Flint, CEO and CIO of Double Haven. It will have a bias towards investment-grade issuers, which must account for at least 65% of the fund, and aims to outperform the JP Morgan Asian Credit Corporate sub-index.
This is the first time Double Haven, which recently acquired hedge fund platform DragonBack Capital, has worked for the reinsurance client in question, Flint tells AsianInvestor. It is also the firm’s first long-only product, but it “has the capacity to do more”.
The planned direct-lending fund will be in the form of a traditional private equity structure with committed and locked-up capital, he says, and will therefore only appeal to those investors which can take such illiquidity.
“We believe if one wishes to take the exposure of high-yield corporates in the region, it is in many instances much safer to take this through a secured private loan rather than a public bond.”
The environment is ripe for entering this area now, argues Flint. The investment team has been involved in the strategy since late 2004 and “there are elements as relevant today as they were then, such as that commercial banks lack the speed of execution or sophistication, as many of the deals fall outside their domain”.
But events following the global financial crisis have led to additional opportunities, he notes, with Western commercial banks pulling liquidity back home or Asian commercial banks starting to reduce loan growth as a result of slowing deposit growth.
In addition, the liquidity provided by investment bank proprietary trading desks has been severely curtailed, along with that from hedge funds, he says. “All in all this offers investors who can take illiquidity a significant liquidity premium over a similar public credit."