Top-performing Asian debt fund attracts inflows

Singapore-based Asian distressed debt manager soft-closes first tranche.

The Asian Debt Fund, a Singapore-based distressed debt manager launched by ex-Lazard banker Moe Ibrahim, has soft-closed the first tranche of its fund, having surpassed $55 million within the one year since its launch. The fund is sponsored by Finansa, a Bangkok-based investment bank, and Japan Asia Investment Corporation, a Tokyo-based venture capital company.

The Asian Debt Fund was one of the best performing Asian hedge funds in 2004, returning 25% to mid December with no down months. The fund returned 5% during the month of October. By contrast, the ABN Amro Eurekahedge Index for Asian hedge funds was up just 4% to mid-December.

"The class-A tranche of the fund was closed to new investors at the end of 2004," says Ibrahim. "We will open the class-B tranche, with the only difference being that investors in this tranche will not enjoy a hurdle rate of 8% that early investors receive."

The hurdle rate refers to the return above which a hedge fund manager begins taking incentive fees. Ibrahim expects the first tranche to continue to grow in size as existing investors increase their allocations up to their capacity guarantees over time.

Ibrahim says that that the fund has begun to attract large global allocators now it has hit the $50 million milestone and has a one-year track record behind it. "While Asian fund of hedge funds were our earliest investors, these funds typically allocate about $1 million with capacity agreements of up to $3 to $4 million," he comments. "We're now seeing global institutional investors making initial allocations in our fund of up to $6 to $7 million."

Ibrahim says he will cap the fund at a total of $150 million, a target he hopes to reach in 2005. "We want to keep the fund small so investors can continue to enjoy the monthly liquidity we offer as well as the high returns," he adds.

His outlook for 2005 is optimistic. "We're seeing plenty of pockets of opportunities for 2005. While our portfolio continues to perform according to expectations, in recent weeks several positions have experienced rapid price appreciation as a result of favorable business conditions."

Ibrahim says the fund seeks to limit event risk by investing in those situations where a value-creating event is expected within nine to 18 months. The fund seeks to limit valuation risk by focusing on the most senior instruments in the capital structure and by creating a portfolio where the majority of the positions were quoted on the secondary market.

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