Fifth Street’s hedge fund wind-down nears conclusion

The firm has agreed to sell its two BDCs and last month closed a sale of its senior loan vehicles.

Fifth Street Asset Management is set to finish its wind-down of its long-short hedge fund vehicle next month, which would mark the fourth vehicle the firm will cease to manage this year.

The Greenwich, Connecticut-based investment shop will finish in September returning capital to investors from its Fifth Street Opportunity Fund, which invests in corporate credit and equities, including leveraged loans and business development companies, according to its second-quarter earnings report.

Once that is complete, Fifth Street will terminate its investment management agreement with the Opportunities Fund. The firm initially disclosed the vehicle’s wind-down in its first-quarter earnings report. The Opportunities Fund, launched in March 2013, managed $73.41 million as of 31 December.

In its quarterly report, Fifth Street listed the wind-down as a risk factor. The regulatory filing read: “We cannot assure you that any such sale or wind-down will be completed on a timely basis or attractive terms, or at all, or that such actions will improve our financial condition or results of operations.”

The firm’s 2016 annual report listed five total investment strategies: the Fifth Street Finance Corporation and Fifth Street Senior Floating Rate Corporation BDCs, two senior loan fund collateralised loan obligations, the Opportunities Fund and a $50 million separately managed account.

Transactions are underway or have been completed to sell FSFR and FSC as well as the SLF, making the Opportunities Fund the fourth vehicle this year Fifth will cease to manage.

The Opportunities Fund could be Fifth Street’s fourth vehicle to cease operations this year. In July, Oaktree Capital Management and Fifth Street entered into an agreement to buy FSC and FSFR for $320 million of cash, which is expected to close by the fourth quarter.

That same month, NewStar Financial and Fifth Street wrapped up a deal in which the latter purchased the two CLOs for a $29 million gross consideration, consisiting of $16 million in cash and $13 million in assumption of liabilities.

The firm declined to comment on the fate of the managed account, which it landed with a “large institutional investor” in January 2016, which invests in mid-market loans.

For the second quarter, the firm earned net investment income of $19.39 million, a decrease from the $29.11 million it reported in the second quarter of 2016.