Bridging Finance’s fund of funds is the latest debt product tailored for Canadian investors

The vehicle is the most recent example of Canadian GPs looking to get investors involved in the asset class through diverse debt products.

Canadian investors will see their first opportunity to invest in an alternative credit fund of funds as private debt product offerings in the country continue to spread like wildfire.

Bridging Finance, a Toronto-based mid-market lender, is launching a fund of funds product this month that is targeting C$500 million ($372.5 million; €331.06 million) in partnership with Fern Capital Partners. The Bridging Fern Alternative Credit Fund plans to invest in a mix of liquid and illiquid private credit funds, according to documents from the firm.

The vehicle plans to be evenly dispersed across six managers and nine funds including two of Bridging Finance’s in-house vehicles. Other names on the list include Onex Credit Partners, Lawrence Park Asset Management and NextEdge Capital Corp.

The vehicle will charge a management fee of 40 basis points in addition to the management fees of the underlying funds, which range from 1-1.5 percent and 15-20 percent for performance fees.

The fund of funds structure allows for a wide audience of investors who are less familiar with the asset class to gain exposure to it, Wilson Tow, a managing partner at Bridging Fern Capital Partners, told Private Debt Investor.

Wilson Tow is a managing partner at Bridging Fern Capital Partners.

“This is the right product to reach out to a broader audience and introduce them to a private debt market within a larger context,” he said.

The fund will initially be targeting retail investors and high-net-worth individuals and will come with an educational element for now, Tow added.

“I think the fund of funds structure makes a lot of sense,” he continued. “To have a diversified one-stop solution with qualified managers managing the portfolio allows investors to tap into a multitude of credit strategies in one product.”

Private debt funds of funds maintain a steady appetite from investors, according to sister publication Private Equity International’s PEI Perspectives Survey 2019. Some 61.8 percent of investors said they wanted to keep their allocation to the strategy the same. In addition, 10.3 percent of investors wanted to increase it and 27.9 percent wanted to decrease it.

Canadian investors seem to look more favourably on fund of funds structures too. A survey put out by CIBC Mellon found that 70 percent of Canadian investors were investing in the strategy.

Bridging Finance joins multiple other firms debuting new credit products to the investors in Canada so far in 2019, and with good reason. The CIBC Mellon study found that 58 percent of the country’s investors were looking to increase their allocation to alternatives, with only 54 percent of investors investing in a traditional fund structure.

Janet Rabovsky, a partner at Ellement consulting who works with Canadian limited partners, said that she wouldn’t recommend a fund of funds to her clients because of the additional costs. But she has seen many new attractive products entering the private debt market, and more investors eager to get involved with the asset class since she started at Ellement in 2016.

Janet Rabovsky is a partner at Ellement Consulting Group.

“People have been seeking ways to better stabilise their portfolio,” Rabovsky said. “Investors in Canada have been quite large adopters of private credit.”

Earlier this year, Ninepoint Partners teamed up with Monroe Capital on a fund to help open US mid-market debt to Canadian investors. Northleaf Capital Partners also recently launched an open-ended vehicle designed to target a broader base of Canadian investors, Private Debt Investor previously reported.

Rabovsky said she thought open-ended credit funds are a great option for investors looking to get involved without locking their money up for long periods of time.

“What we have started looking at is the creation of open-ended funds,” Rabovsky said. “We are looking more at that kind of stuff for clients that don’t want to tie their money up for five to seven years.”