A new special situations fund is being launched to back survivors in the devastated capital markets in Russia and Eastern Europe.
The target size of the new East Capital Special Opportunities Fund is $100 million and it will be seeded by a €35 million investment from East Capital Explorer, which luckily raised cash before the crisis, and has sat on it waiting for the right time to invest.
There is a 2% management fee, and a 20% performance fee, with a 7% hurdle. It will target investments in companies with a solid business and operations which, due to market or owner-specific reasons, can be acquired cheaply. There will also be a degree of activism in the stakes held, perhaps by board representation. The emphasis will be on equity stakes but investments via other parts of the capital structure will also be made.
The fund has a life of four years after which it will be liquidated and all proceeds paid out to investors. The fund can also make distributions throughout its term as exits are made. There is a possibility of liquidity ahead of the four-year term through quarterly redemptions limited to 10% of an individual holding based on the net asset value at the time of redemption.
Michael Hanson-Lawson, the firm's CEO in Hong Kong, says that now is the time to capitalise on the abnormalities present in Russia and Eastern Europe. These markets were pummelled worse than Asian or Western European markets in the final months of 2008.