Hong Kong-based private debt manager Zerobridge Partners has hired a former BlackRock executive to head capital raising in the hope of ending its long search for a seed investor. Like many new fund houses, it has struggled to secure capital, with allocators cautious to commit to start-up strategies amid Covid-19.
Stephen Hull started in the newly created role at Zerobridge yesterday (November 2), having been BlackRock’s Asia Pacific head of investment solutions until September last year. In that post, he had advised asset owners on portfolio construction and asset allocation.
“Asian private debt is a relatively new asset class for many institutions globally, so we are keen to leverage Stephen’s experience as an asset allocator in our drive to educate the market,” Michael Marquardt, chief operating officer at Zerobridge, told AsianInvestor. The firm won its regulatory licence in Hong Kong in May last year.
Hull joins industry veteran Robert Lance, who came on board as an adviser in July, mainly to help source deals for the firm’s advisory business from his network in Australia. Lance will also support capital-raising for the fund, having also worked for alternative asset managers including Blue Quay, Ascalon and DragonBack.
After leaving BlackRock, where he had spent some 14 years, Hull had explored opportunities including entrepreneurial ventures. The new appointment has reunited him with former BlackRock colleague Marquardt, who worked for nearly 17 years at the fund manager, including seven as Asia Pacific COO.
Marquardt and Zerobridge founder and managing partner Rahul Kotwal had previously looked after capital raising and will remain heavily involved in that process.
“The key right now is to have calls to connect with and educate LPs on the benefits of Asia private lending so that, once we can fly, we can have conversations that are further along,” Marquardt said.
There is no shortage of institutions keen to add to their allocation to private credit or make their first moves into such strategies. Malaysian state-linked fund manager PNB and London-based Nationwide Pension Fund both expect to make debut investments into the asset class at some point, and the US state of Iowa’s retirement fund is also open to the idea. Meanwhile, Korea's Public Officials Benefit Association took the plunge late last year.
Yet despite the fast-rising popularity of private credit, the pandemic has hurt capital raising for such strategies since its onset in February, as it has for most asset classes. Private debt funds raised $109.8 billion globally in the first nine months of this year, $40 billion down from the same period last year and the lowest figure since 2016, according to Private Debt Investor data.
New managers have found the environment particularly challenging, as constraints on travel and face-to-face meetings have made it hard to build relationships with prospective clients.
All this is leading to assets being concentrated with larger managers, Zerobridge's Kotwal said, as well as a lot of capital "sitting on the sidelines earning little to nothing".
In late January, Zerobridge had been very close to agreeing a deal with a seed investor for its Credit Opportunities Fund, Marquardt said. “As a result of Covid, however, the potential partner decided that it was not the time to put additional capital to work. Though we were disappointed we fully understood the decision.”
Zerobridge is now having seed-capital discussions with investors across Asia, Europe and the US, including insurance companies, asset managers and manager-seeding programmes.
“Our preference is to find one partner that can seed for $75 million to $100 million,” Marquardt said. Once Zerobridge has secured that deal, he added, it plans to hire analysts and operations staff to support the deployment of capital and operation of the fund.
The firm aims to raise $350 million with a hard cap of $500 million for the first fund and will target returns of 12% to 14% net of fees. The team will be putting in some of their own capital to ensure alignment of interest, with the amount yet to be determined.
Ultimately, Asia appears to offer a huge opportunity. Small and medium-sized enterprises in Asia Pacific faced a $4.1 trillion funding gap in 2019, found a study released in August by the Alternative Credit Council. That gap is only likely to have increased in light of the coronavirus-driven lockdowns and restrictions this year.
Accordingly, the number of firms setting up teams to tap private financing opportunities in Asia has ramped up heavily in the past few years.