Fair Oaks Capital was launched in 2013 by senior professionals previously at GSO Capital Partners and Apollo Global Management. It characterises itself as a research-driven investment manager with a focus on fundamental corporate credit analysis.
“Our focus is to identify the highest conviction strategies in credit markets at any point in time for our liquid and long-term funds. We aim to offer investors differentiated opportunities which offer attractive risk-adjusted returns and low correlation with their more traditional positions,” explains Miguel Ramos, Partner.
Fair Oaks Capital’s first fund was launched in June 2014 as a listed, closed-ended vehicle which invests in control equity positions in collateralised loan obligations (CLOs). Later, in September 2016, the firm saw the opportunity to launch its more liquid strategy, Fair Oaks Dynamic Credit. As the first UCITS fund focused on the global CLO market, it offers an innovative way to gain exposure to European and US senior secured bank loans.
The focus on CLOs as a high conviction strategy over the last four years means that Fair Oaks Capital has built one of the largest and most experienced teams focused on investing in this asset class.
In addition to the focus on fundamental analysis of the underlying loan portfolios, the investment team includes specialists in structured finance, documentation review and CLO manager due diligence. Being one of the largest investors in the CLO space, Fair Oaks enjoys superior access to investment opportunities in the primary and secondary markets.
Other structured asset funds tend to focus on traditional ABS and RMBS, using CLOs as diversifiers or sources of relative value. Fair Oaks believes that CLOs are different given the lower portfolio granularity and diversity in underlying credits.
“RMBS may be backed by thousands of mortgages from a single country. As a result, managers typically focus on top-down, quantitative approaches based on macro factors. A CLO could be backed by 200 corporate loans and it is key to be able to review the individual issuers to assess the potential future performance of the deal. This requires different investment resources and allows Fair Oaks to identify and benefit from market inefficiencies.”
Fair Oaks Dynamic Credit primarily invests in investment grade rated CLO securities and targets Euribor+ 4 per cent pa net returns, offering a significant yield pick-up versus investment grade corporate bonds. During 2017, the founding share class returned 5.89 per cent.
Ramos says: “Last year the Fund benefited from an active primary CLO market which recorded strong levels of new issuance, even though US CLO risk retention requirements were in place.
“The Fund deploys a defensive strategy as it invests in CLOs whose underlying assets are backed by senior secured corporate loans. The current portfolio includes more than 90 positions and 1,400 underlying senior secured loans. AUM has grown to over EUR480 million.”
CLOs are also floating rate instruments and are not exposed to interest rate risks, a key consideration at the current point in the interest rate cycle in the US.
Ramos adds: “The Fund was able to enhance the carry generated in the portfolio by purchasing investments where the team believed there was potential for additional return via, for example, buying bonds at a discount with high probability of an early call.”
On winning this year’s award, Roger Coyle, one of the Fair Oaks founders, comments: “We are pleased for Fair Oaks Dynamic Credit to win the award. The Fund has performed well since its inception in 2016 and we continue to see significant opportunity and value for investors in the strategy.”
