The Credit Opportunities Fund

 

The Credit Opportunities Fund (“COF” or “the Fund”) was launched in October 2014 as a portfolio investor in equipment and trade receivables. As FCFM sees greater opportunity for investors in a broader range of actively managed Australasian corporate credit assets, the Fund will re-launch in mid 2018. Targeting opportunities with Australasian mid-market companies, COF will offer a range of yield-driven products to borrowers across a broad range of industry sectors.

 

Alternative credit (also known as “private debt”) is a well-known alternative asset around the globe and constitutes ~8-9% of all alternatives in a well-diversified investment portfolio. In Australia such assets have been difficult to source by investors due to the stranglehold held by the major banks on company lending. The Manager has identified niches in this market where good quality corporate borrowers are under-served by the banking community and strong returns are available for intelligent investment.

 

On offer to wholesale and professional investors is an attractive monthly cash yield, combined with annual payment of excess returns. FCFM seeks a first close of its open-ended Fund at a target capital raise of A$50million.

Target assets

The fund will seek to invest in high-yielding credit assets including, but not limited to, senior secured loans or leases, secured subordinated loans, unitranche loans, mezzanine loans, syndicated loans and other instruments of a debt nature. Underlying assets may be of any size, but our expectation is that the majority will be mid-market companies and small- to medium-sized enterprises (SMEs). Assets may be in any sector, with a term of up to 5 years. No one exposure will exceed 25% of the fund assets.

 

Assets will be selected on the basis of appropriate risk-adjusted return, underlying security, fund concentration, sector diversity and term to provide investors with an attractive spread of underlying assets. The assets will be managed by a highly experienced team of corporate bankers, fund managers and credit analysts.

Seed assets

FC Capital has secured a number of assets to establish the Fund’s portfolio. An overview of these assets is as follows;

 

Asset Sector Value $M Yield %pa Type
1 Container hire $7.21 12.25% Senior Secured
2 Citrus & horticulture producer $10.00 15.0% Subordinate Debt
3 Pharmacy acquisition $13.79 15.0% Senior Secured
4 Property development $5.95 19.2% Senior Secured
5 e-Retailer $1.50 15.0% Senior Secured
6 Tourism $3.48 15.0% Senior Secured
7 Food production $17.50 12.0% Senior Secured
8 Financial Payments system $3.56 12.0% Senior Secured

The assets to be used to seed the Fund are covered in more detail in the Information Memorandum.

Fund objectives

The Fund will target a return to investors of circa 8 – 11% p.a. after all fees and costs*, made up of;

  1. A floating rate cash yield of RBA cash rate plus 6%*, paid on a monthly basis; plus
  2. Surplus cash income distributed on an annual basis

*These are targeted returns and payments. Note that the performance of the fund is not guaranteed.

Key Parties

Trustee:  FC Securities P/L (“FCS”)

Manager:  FC Funds Management P/L (“FCFM”). AFSL 431245

Custodian:  A.E.T. Corporate Trust Pty Limited

Management fee

The Manager will charge an annual management fee of 1.00 % of the Gross Asset Value of the Fund. This will be paid monthly in arrears based on the average opening and closing Gross Assets.

Other fees and expenses

Other fees will be disbursed on an ‘as incurred’ basis from fund assets to cover Trustee, Custodian, administration, registry, valuation, accounting, taxation, legal, insurance and other third party expenses.

Performance fee

The Manager will be entitled to a performance fee equal to 20% of distributable surplus cash returns in excess of the monthly cash yield paid to investors. This performance fee will be calculated and paid annually in arrears.

Aligned interests through
co-investment

In addition to the performance fees retained within the fund, FC Capital, its directors and senior staff (“FC Capital”) will co-invest alongside third party investors. FC Capital will invest no less than 10 % of all third party investments, until third party investments exceed $100 million.

Valuation and reporting

The Fund will be valued every quarter at the usual quarter end dates. Third party valuations may be used for any assets not valued at par. Investors will receive monthly holdings and distribution statements, quarterly investment and valuation reports and annual audited accounts.

Liquidity

After an initial investment period of 12 months, investments may be redeemed with 90 days notice on any valuation date, subject to available liquidity within the Fund.

 

The Fund may borrow from a bank or other lending institution purely to manage liquidity within the Fund. The Fund will not gear its investments. Liquidity facilities, if taken up, will not exceed 20% of the Fund size

Future

The Manager undertakes to list the Fund upon it reaching appropriate scale, to increase liquidity for investors.

Minimum investment size

A$250,000 or such lesser amount as may be acceptable to the Manager, subject to written confirmation that the investor meets the definition of a Professional or Wholesale Investor under Section 761G of the Corporations Act.

To find out more and to receive an Information Memorandum