Chinese distressed debt fund manager Shoreline Capital has closed its second fund at just over $300 million – nearly double the size of its first fund, which secured $178.2 million of commitments.
In addition to receiving commitments from institutions based across North America, Europe, Asia and the Middle East, the fund attracted wide pool of investors including endowments, foundations, fund-of-funds, family offices and pension funds.
Since its inception in 2004, the firm has focused on credit-related opportunities arising from the inefficiencies in China’s financial system, particularly in debt restructuring, non-performing loan portfolios and structured special situation financing, as well as distressed private equity and real estate.
Shoreline is not the only managers taking the plunge on the new asset class, and operating locally in China. Some private equity companies are setting up funds to take advantage of constraints on banks in the region.
Elsewhere, Olympus Capital, a mid-market Hong Kong-based private equity fund manager, confirmed it was in the process of raising its own $750 million debt fund. Meanwhile, Asian asset manager PAG is in the process of raising a special situations fund and a $800 million direct lending fund.
“China’s financial system allocates capital inefficiently and produces special situations opportunities,” explained Benjamin Fanger, co-founder and managing director, of Shoreline Capital. “Now that China is facing a slowing growth rate, these types of opportunities have multiplied.”
Banks have been trying to cope with regulatory requirements has given rise to the cost of capital. Fanger believes the increasing number of Chinese companies either grappling with refinancing issues or immersed in distressed debt will provide “exciting opportunities” for debt funds.
“The former produces special situations opportunities while the latter gives rise to distressed debt,” he adds. “Such special situations are generally asset-backed rescue financings that allow companies to bridge periods where they cannot get bank loans.”