Duchess 1 ahead of schedule

Within six months of its launch, Duke Street Capital Debt Management has invested over two thirds of its E750m debt fund.

Duke Street Capital Debt Management (DSCDM), the debt fund management division of Duke Street Capital, has invested over E500m of its first E750m CDO fund, in around 35 transactions.

Duchess 1, which was launched in March, is currently the largest fund of its kind in Europe. It focuses on senior and mezzanine loans within the leveraged finance market, spreading the risk over industries as much as possible.

DSCDM says that unlike other CDO vehicles in Europe and the US, Duchess relies less on the high yield bond market as a source of underlying assets. Ian Hazelton, chief executive of DSCDM, believes that the fund’s focus on loan assets, with limited high yield debt exposure as well as its ability to invest in both sterling and euros, has enabled it to benefit from strong primary deal flow.

Hazelton said that his fund stands apart from other CDOs that have received bad press in recent months. “The fact that we are loan based means that we are higher up the security structure than a high yield fund would be, so we are more stable. Also, we are quite new into the market, and weren’t investing around 1997 to 1998 when credit quality was not as rigourous as it is now.”

The assets in which the fund invests in are subject to a rigorous internal credit approval process, including an appraisal of likely performance during any general economic downturn. As Hazelton explained: “We are very much credit led, not opportunistic price led.”

He confirmed that DSCDM is close to launching another senior loan led fund, for which fundraising will start between now and the end of the year.