Prime Capital launches debt fund of funds

The Germany-based advisory firm and asset manager has just launched a credit opportunities fund which will invest with managers focused on distressed credit investments in the US and Europe.

Prime Capital is launching a credit opportunities fund which will invest with five private debt managers, PDI can reveal. The new vehicle began marketing this week, according to a statement by the German advisory firm and asset manager. 

The five managers lined up to absorb capital from the vehicle are Davidson Kempner Capital Management, GSO Capital Partners, Oaktree Capital Management, Sankaty Advisors and Värde Partners, a source close to the situation told PDI. The make-up of the managers may change depending on the timing of fundraising. The firm is seeking to raise between €250 million and €300 million-equivalent and commitments will be made in US dollars, the source added. 

“Our investment team, which has been working together for more than 10 years, has received several awards for its manager selection expertise. We are now making this expertise available to professional investors through the launch of a credit opportunities fund,” said Prime Capital’s chief investment officer and board member, Werner Goricki in the statement.

The fund is being positioned to meet the needs of investors seeking an alternative to private equity investments, Andreas Kalusche, managing director, client solutions at Prime Capital, told PDI. Traditional private equity allocations have diminishing appeal for some as asset prices and enterprise value multiples in sales have risen alongside a build-up in private equity fund dry powder, he added.

The new vehicle, which will be based in Luxembourg and is structured as a closed-ended special fund (SICAV-SIF), is targeting a net internal rate of return of between 12.5 and 15 percent, according to the statement. It will focus on opportunities in the US and Europe and a first close is scheduled for the second quarter of 2016, the statement noted.

The fund of fund approach works best for Prime Capital because it allows investors to access some of the strongest managers in the sector, explained Kalusche. The vehicle will focus on two main strategies as well as invest via two other minority opportunity sets. The fund will have a heavy weighting of European non-performing loan portfolios. Several of the very large portfolio purchases by firms like Lone Star have attracted a lot of attention, noted Kalusche. But there are a steady stream of smaller transactions to come from banks as rising asset prices lift parts of their bad asset portfolios, giving them enough of a boost to sell the remaining bad assets at a discount, he explained. 

The other major strategy will be distressed corporate debt, noted Kalusche. The managers Prime Credit has selected are skilled at timing investments and have the experience to take over a company when that route offers the best recovery, he said. 

The two other investment targets will be outstanding distressed structured credit portfolios and liquidation scenarios where an outstanding claim can be purchased, Kalusche continued. 

One of the benefits of the fund of fund approach is its flexibility, said Kalusche. Should there be alternative managers seeking to sell their funds as a result of, for example, the opportunity in the distressed oil and gas market not fully materialising, the managers in Prime’s fund of funds can handle such opportunistic assets, he said. 

The new fund will be administered by Prime AIFM, a German alternative investment fund manager. The investment period is up to four years though Kalusche expects it will be shorter and the harvest period will be over a three- to five-year period.

Prime Capital is an alternative investment advisory and asset management firm. It was founded in 2006 and has offices in Frankfurt, London and Luxembourg. The firm had more than €5 billion in assets under management, as of 31 March 2015.