Hildene Capital Management has opened a new distressed credit fund three years after launching its first fund, which has earned hefty profits investing in trust preferred securities.
The new fund, Hildene Opportunities Fund II, will have a broad mandate to focus on purchasing structured products and the firm thinks it can manage as much as $500 million, according to an investor. The firm’s first fund, Hildene Opportunities Fund, was launched in May 2008 with a similarly broad mandate, but within eight months founder Brett Jefferson, a former senior portfolio manager at Marathon Asset Management who had invested in structured products, determined that TruPS collateralized debt obligations were, as a result of the U.S. banking crisis, the best structured credit bargains available.
That fund was up 21.45% for the year through August (data here) compared to a 4.58% gain for the AR Credit Index, and has produced a net annualized return since inception of 30.21%. It closed to new investors in January,
although it is replacing any capital lost through redemptions.
The new fund has no particular niche in mind. It launched on August 1 and gained 1.93% in its first month of trading. Its initial asset allocation is tilted heavily toward collateralized loan obligations, with the remainder invested in CDOs of asset-backed securities and other structured products as well as in the debt and preferred stock of financial institutions, according to a presentation sent to potential investors. The new fund is managed by the same 8-person New York team as the flagship fund.
“There are a great deal of structured credit securities that we see, both performing and non-performing, that are often overlooked by investors given the small size of the opportunities,” said Allison Greenberg, Hildene’s director of marketing and investor relations. “We built our $450 million book of TruPS CDOs by buying small pieces at a time, sometimes as small as a few hundred thousand dollars in proceeds for a single trade, so putting in the time to cobble together small but highly profitable investments is where we have an edge.”