Prestige Capital Management has launched its Commercial Finance Opportunities Fund on the Sweden-based Mutual Funds Exchange (MFEX) platform and has launched a dedicated Swedish Krona (SEK) hedged share class.
The fund aims to achieve consistent absolute returns in most market conditions, using a diverse portfolio that carefully manages individual client and sector asset allocation risk. Prestige targets long term, consistent risk-adjusted returns with low systemic or market risk.
Target returns are 5-7 per cent per annum, with a target volatility of 1 per cent per annum.
By investing in a diverse portfolio of specialist loans, the fund aims to provide a consistent return profile that is not correlated to traditional and increasingly volatile equity or fixed income markets. The fund focuses on direct lending activity, namely commercial loans for small and medium enterprises (SMEs). Specialist financing areas include invoice, asset and commercial finance related opportunities.
At both fund level and finance arranger level, commercial banking professionals with extensive experience of the UK and US financing markets manage the portfolio, maintaining close contact with the underlying financing clients.
The principal finance arranger responsible for originating most of the fund’s loans has now lent approximately GBP400 million over the past five years to hundreds of small companies. The team, which has grown significantly over the past few years, now expects to see a significant increase in deal flow opportunities as a result of some of the uncertainties surrounding last month’s “Brexit” referendum which may cause more of the traditional lenders to hoard cash and rein in further “non-commoditised” funding areas as a result of falling share prices and credit ratings.
Given that almost a third of the world economy is currently in negative interest rates, this milestone for Prestige comes at a time when financial advisory groups, pension funds and other institutional investors are increasingly focusing more attention on real asset strategies that do not trade public markets in their quest for positive yielding, non-correlated returns.
Craig Reeves, founder of Prestige, says: “We are excited at the prospects for both our direct lending businesses and the wider access that our funds will gain from the MFEX platform. This will enable an increasing number of Scandinavian investors who are searching for positive yield (against a backdrop of negative interest rates) to access a growing asset class that operates with genuine low correlation and volatility compared to traditional fixed income and equity-based investment strategies.
“The market is seeing a greater level of interest from smaller and mid-size pension funds attracted by the transparent nature of the loan-based investment approach: cash flows are more predictable, and risks are more widely spread. This often results in more consistent, positive returns to investors.”
Celebrating its ninth birthday this month, Prestige, which now employs and retains approximately 100 professionals in the UK and several international financial centres, has now raised approximately USD1.2 billion/GBP900 million since 2008.
Prestige now has approximately 300 investor groups allocating to its funds including: banks, insurance companies, charities, private banks, family offices, advisory groups and investment intermediaries. Prestige owns several UK-based “finance arrangers” as part of its direct lending portfolio management team, and together these have lent over GBP1 billion to small businesses in the UK.
Loans are typically secured against real assets, including land and buildings as well as debentures over long term income streams and, increasingly, control over bank accounts.
The amount invested with loan based funds has been steadily increasing, with over USD19 billion/GBP13.5 billion secured by private lending funds in Europe in 2015, according to research group Preqin. The sector’s growth is being powered partly by a lack of alternative financing opportunities, as large banks continue to consolidate their existing lending operations.
“We’re pleased with our continued growth during the first half of 2016, both in terms of the number and size of investors as well as the increasing level of activity in loan origination opportunities,” Reeves adds. “This is largely down to the professional finance teams we have developed to manage our finance arranging businesses and the underlying client base. Their market knowledge and experience has earned the respect of our clients and has played an important role in the growth of our asset base.”