Stockholm (HedgeNordic) – Copenhagen-based sub-investment credit manager Capital Four Management is planning the launch of multiple credit funds following “strong demand from my clients for structured credit or private debt,” co-founder and CEO Sandro Näf (pictured) tells Bloomberg. “Structured credit is something where we are setting up funds now.”
As reported by HedgeNordic in early May in connection with Capital Four’s hiring of Elizabeth Holmenlund as vice president, the Danish credit manager launched two new funds focusing on opportunities in structured credit. One of the funds, the Structured Credit Opportunities Fund, primarily focuses on investing in the mezzanine and equity tranches of collateralized loan obligations (CLOs). The decision to launch the fund comes after the market for such products “sold off and is trading at around 30, 40 cents on the dollar,” Näf tells Bloomberg.
According to a brief write-up about Capital Four Structured Credit Opportunities, the fund targets a net annual return of 10-12 percent over the cycle. “In the current environment, we expect a yearly return to be in the range of 15-20 percent, with the portfolio primarily invested in CLO mezzanine and CLO equity with a gross credit exposure of 100 percent (i.e. unlevered),” says the write-up.
Following the hiring Elizabeth Holmenlund, Capital Four told HedgeNordic that “the addition of Elizabeth Holmenlund is part of the ongoing expansion of our investment team, given our strong growth in assets under management and newly launched strategies, expanding our coverage of Leveraged Finance.” The Copenhagen-based credit manager has also recruited Caroline Soliman Løwe as a director in the private debt team, as well as Oliver Bond from BNP Paribas and Kasper Kelin-Ipsen from Danske Bank as origination analysts.
For the private debt products, Capital Four plans to focus on the Scandinavian region, which investors consider “as an area that will be less severely impacted” by the fallout from COVID-19, according to Näf. “We get a lot of interest from people who think our part of the world is looking very good,” he tells Bloomberg. “People think these are strong economies that will do better than the rest of Europe.”
A little more than two months ago, the credit market witnessed a sharp increase in credit spreads due to an increase in investors’ risk aversion, as lockdown measures in response to the spread of COVID-19 had an immediate impact on the level of economic activity in many sectors. The European leveraged finance market has recovered somewhat partly due to monetary and fiscal stimulus. “Markets were down 20 percent and now 10 percent. So of course it feels a lot better than in March,” Näf tells Bloomberg. The co-founder of Capital Four says that “it’s clear” that policymakers “are doing the right thing” to fight the crisis, giving investors a “good reason to be more comfortable.”
Despite a partial recovery since the March freefall, Näf reckons that there is still more room for gains. “The question is: Is 10% enough compensation for the fundamental risk in the market?” says Näf. “In the last 20 years, leveraged finance has developed significantly,” emphasizes Näf. “It’s a much more broad universe.” Following the heightened market volatility earlier this year, it is now “easier to find attractive companies,” concludes Näf.
