Robin MillerIndustry Funds Management (IFM) is raising capital from institutional investors for a multi-manager product primarily targeting high-yield bank loans in the American and European markets.

“The value out there in corporate credit due to price dislocation is striking,” Robin Miller, executive director – debt investments, said.

Miller said the debt markets had “factored in a very grim outlook for corporate defaults in the next few years” as cumulative default rates in the high yield markets of America and Europe were approximately 50 per cent for the next two years.

“That doesn’t stop them being senior and fully-secured, with first call on surplus cash in the business.”

The IFM Global Loan Opportunities Fund will be managed from Melbourne by Miller, and some due diligence on managers will be conducted from the manager’s New York office. Its primary focus will be on the American market, followed by Europe.

Technical and fundamental factors have combined to rupture the American debt market: deleveraging and client redemptions had forced credit investors to sell-down holdings into a falling market.

“There is a lot of supply and little demand.”

Some bank loans should not be considered for investment, such as those made to financial, automotive, commercial property, residential construction, he said. “Health care and debt for infrastructure are better.”

Because some of the underlying investments would probably be illiquid, the fund would enforce “long lock-ups, and not offer liquidity” similar to private equity managers. “This is a niche product.”

In the past three years, Miller and his team, which he began building in mid-2007, have assessed 150 managers to compile a shortlist of 25. But between six and 10 managers only would be selected.

While managers’ strategies, and the ways in which they were complementary, were important, operational considerations were also important.

“Was there leverage and how did funds use it, and what risks did this create? If a fund used leverage, have they deleveraged responsibly and are not exposed to redemption risks.”

The fund is being assessed by consultants. It will charge a 30 basis point management fee and 15 per cent of performance above 10 per cent.

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