While most credit investors aim to avoid defaults, Swedish investors Gustav Hultgren and Tobias Thunander have built a career on the opposite: buying non-performing loans (NPLs) at steep discounts and working with borrowers to recover payments. Following a successful track record with their Laub Capital 1 fund, the duo, backed by a broader team out of Budapest and Luxembourg, is now preparing to launch Laub Capital II, targeting equity-like returns from non-performing loans.

A loan, whether consumer or corporate, becomes non-performing when the borrower is overdue on interest or principal payments, typically by 90 days or more. “Even after banks write down expected credit losses to almost zero, they still must hold regulatory capital against the full position,” Hultgren explains. This regulatory burden, coupled with operational costs, motivates banks to offload NPLs: a niche where Laub Capital specializes.

Laub Capital acquires portfolios of consumer and SME loans across Europe at deep discounts, aiming to recover more than the purchase price through targeted resolution strategies. “For us, the importance is to get granular exposure in consumer loans and SME credits,” says Thunander, highlighting that their scope includes bank loans, overdrafts, mortgages, auto loans, and credit cards. The firm collaborates with local collection companies matched to each loan type. Mortgages, for example, often require legal expertise, while unsecured consumer loans benefit from call center-driven recovery efforts.

“For us, the importance is to get granular exposure in consumer loans and SME credits.”

Tobias Thunander

Hultgren emphasizes that most borrowers initially take loans with the intention of repaying. “Then something happens, it gets very uncomfortable, and people typically try to avoid the subject as much as possible,” Hultgren notes. Laub Capital’s approach is to open dialogue, negotiate partial repayments, and, when necessary, write off portions of the debt while still achieving favorable returns. “Acquiring loans at 15 cents on the euro gives us enormous flexibility. There’s a lot of room to negotiate with borrowers, and we can write off big portions of the loan as long as we get something repaid.”

Laub Capital structures its funds as closed-ended partnerships domiciled in Luxembourg. Investors commit capital that is drawn over the investment period, after which cash flows from loan recoveries are distributed monthly until the portfolios are largely wound down. “About two-thirds of the cash flow typically comes in the first two to three years,” Thunander explains. “The remainder is managed until the tail-end is disposed of, either to collection partners or rolled into subsequent funds.”

“About two-thirds of the cash flow typically comes in the first two to three years.”

Tobias Thunander

For Laub Capital 1, distributions began in January, and approximately 27 percent of drawn capital will have been returned to investors in the first year of distributions. The strategy, while distressed in nature, targets equity-like returns in the lower mid-teens net of fees, with low volatility and a short weighted average life, complementing portfolios exposed to longer-duration assets such as real estate or forestry. “Investors appreciate this profile, it provides equity-like returns but with a very different risk and duration structure. On top of that, the cash flow generating nature of the assets is very attractive in today’s environment with many alternative asset strategies struggling to return capital to investors,” Hultgren says.

“..it provides equity-like returns but with a very different risk and duration structure. On top of that, the cash flow generating nature of the assets is very attractive in today’s environment…”

Gustav Hultgren

Laub Capital provides exposure to equity-like returns with the risk profile of fixed income, without sensitivity to interest rates. “By acquiring hundreds or even thousands of claims per portfolio, we achieve granular exposure and highly predictable cash flows,” says Thunander. “When we purchase multiple portfolios from different banks, we create what could be called ‘super diversification,’ making the cash flows extremely predictable,” he continues. “Our returns show low or even negative correlation with most other asset classes.”