OCP Asia raised $200 million for a fund that will lend directly to small- and medium-sized companies as banks have pulled back on loans they deem risky.
OCP’s private equity-like fund, Landmark II, completed fundraising earlier this year to bring the amount of assets the firm managed to $1.3 billion as of March, said Teall Edds, a Singapore-based co-founder. OCP Asia’s Landmark I hedge fund returned 14.2 percent in 2016, according to an update sent to investors seen by Bloomberg News. That fund has made loans to companies ranging from Australian property developers and lithium and cobalt producers, to a Singapore-based learning center and a Chinese cinema chain.
Asset managers including Oaktree Capital Group and Permira Debt Managershave started funds to fill in a gap as global banks scale back lending and small- and medium-sized companies have struggled to obtain financing. OCP Asia targets net returns in the mid-teens for investors such as U.S. pensions and endowments, which have been looking for higher yields as central bank interventions have suppressed performance.
OCP Asia spun out of Milwaukee, Wisconsin-based Stark Investments in 2009. Most members of its 22-person team have worked together for more than a decade, said Edds. The firm set up the now $1 billion Landmark I in September 2013 as a hedge fund dedicated to private lending, he said.
The new fund differs from its predecessor in that it has a different structure for investors. Like the previous fund, though, the pool will concentrate on making two- or three-year loans, typically $40 million to $70 million in size, secured with properties and other corporate assets, said Edds. As banks cut back on lending, entrepreneurs have been turning to direct lending funds to finance acquisitions or expand as an alternative to selling shares into a volatile market at discounts and diluting their stakes.
About 85 percent of OCP Asia’s deals, which typically target an internal rate of return of 20 percent to 25 percent, allow it to benefit from upswings in the companies’ equities or take a share of profits.
About 45 percent of its loans in the last two years has been to Australia. Two of OCP Asia-invested companies in the country benefited as the prices of lithium and cobalt surged on rising battery demand, driven in part by the increasing popularity of electric cars and electronic devices such as smartphones.
OCP Asia made a senior secured loan in November 2015 to Galaxy Resources Ltd., the Australia-based company that produces lithium globally, to help it retire convertible bonds and fund their Australian assets, Edds said. It also helped finance Aeon Metals Ltd.’s acquisition of copper resources, which contain significant deposits of cobalt as a by-product, he added.
As much as half of OCP Asia’s lending to Australia in the last two years has been to the real estate industry. In 2014, it lent to Thornhill Park, a residential development in the Melbourne suburbs, said Simmons. In early 2016, OCP Asia invested in Steller Concepts Pty, which focuses on building low-rise apartments for people, such as empty-nester couples, who are selling their houses to move into small residences, said Simmons.
“There has been insufficient new build outside the central business districts over the last decade and half in some parts of Australia,” said Edds. “It’s very much one that’s benefiting from and responding to the fact that low price point buyers have been priced out of markets that we think have gotten overheated.”