Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
It will be sold through private banks, fund-of-funds platforms and insurance companies with which New Star has a pre-existing relationship in Hong Kong and Singapore.
Cobus Kruger, New Star InternationalÆs director of mutual funds, says the portfolio will target a return of 10% and an annual income yield of up to 5%.
The fund, which was inspired by a request from a family office in the Middle East to set up a similar portfolio, will be 80% invested in direct property with the remaining AUM allocated to cash and listed property vehicles. A similar product in the UK, New StarÆs (UK only) Property Fund, was the biggest selling investment fund in that market last year, gathering more than ú2 million every day and ú980 million ($1.96 billion) in total.
ôThe new fund provides access to an asset class that is not correlated to other markets,ö says Kruger. ôPensions and big institutions have always held properties for this reason.ö The fund will invest in core plus properties, i.e. parts of buildings where leases can be negotiated, as opposed to core holdings which are ultra-secure, usually government held, leases, as New Star believe this offers the opportunity to add management value to the fund.
ôIt will be split 60/40 between European and Asian properties, mostly in the office sector, and will only hold US property through Reits or other listed vehicles though we do not feel it is time for that asset class now,ö adds Kruger.
New Star had difficulty setting up the fund, he admits, as it required the setting up of special purpose vehicles in several jurisdictions which, under normal circumstances, meant tax and other issues such as exchange control would have killed performance.
This has been resolved by New Star with the help of KPMG, Kruger says, and adds: ôIt also meant setting up a special purpose vehicle in the UK which held only a single security. We had to approach the UKÆs Financial Services Authority which has now given dispensation to the industry to allow them.ö
As well as launching the new fund, New Star hopes that its Global Financials fund, managed by Guy de Blonay in London, will be accepted for Hong Kong registration, as Kruger explains: ôThe chief reason for the SFCÆs reluctance to register the fund is that 4% was in new Star shares and 52% of New Star shares were owned by company staff. Now the number of shares owned by staff has fallen to 34% we are going back to the SFC to get it registered.ö
New Star, formed in 2000 by former Jupiter Asset Management supremo John Duffield, has now overtaken his former company in total assets under management. Since New StarÆs flotation in November 2005 Duffield has been credited with creating more London city millionaires than any other businessman, including a receptionist.
The companyÆs employees are selling a significant portion of New Star shares and provide investors with a dividend windfall of more than ú55 million this year, as the company moves from LondonÆs Alternative Investment Market to the main stock exchange and changes its name from New Star Asset Management to New Star AM.
Two years ago New Star had plans to set up a retail distribution structure in Asia, but adjusted its strategy to focus on selling to providers, including private banks, fund of funds and insurance companies, that have mutual funds as the building blocks of their product range, and with which its has relationships on a global scale.
ôThe world is starting to focus on boutique asset managers,ö says Kruger. ôVery good fund managers working at big companies have found they spend more time managing the business than they were running money. Working at a smaller company quality fund mangers can add alpha while the focus of larger asset managers is to provide beta cheaply.
ôThe key is to avail yourself to global players and to do that you have to go through their main office before meeting regional decision makers. If I am a big asset manager in Europe or the US I am going to have no choice but to go into Asia and the only way to do it is through a joint venture. Pure asset managers are notoriously bad at running distribution systems.ö
Kruger says Asian institutions tend to stress brand, fees and then performance, and adds: ôFor us it should be performance, fees and then brand as we can help them on the first two fronts but not on the last.ö
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