The asset-based lending sector will get a bit more crowded next year: Chicago-based WexTrust Capital next month will launch an offshore version of its 14-month old domestic ABL hedge fund.
The Wexford High Yield Debt Offshore Fund is looking to build on the performance of its domestic predecessor, the $25 million Wexford High Yield Debt Fund III, which returned 11.6% this year through October. The new fund will continue its predecessor’s strategy of underwriting commercial real estate loans of between $500,000 and $5 million.
The new fund will debut with some $4 million in initial capital, and Wexford hopes to ramp up its assets to $100 million by the end of next year. Amnon Cohen will manage the fund from the firm’s New York office, where most of the loans are originated; the underwriting will take place at its Chicago headquarters.
In the current credit crunch, the firm is looking to provide capital to borrowers who have been abandoned by traditional lenders. “In the current environment, asset-based lending has however become an even more attractive strategy,” said Avi Benamu, director of partner relations. “The contraction of public capital markets is providing great opportunities for private lenders like WexTrust who have capital to put to work immediately to borrowers who have been affected by this liquidity squeeze.”
Benamu said what differentiates WexTrust’s offering from other ABL hedge funds is, where other managers may be forced to sell their bad loans at a loss, the firm only make loans against properties it would want to own in the event that the borrower defaults on the loan.
“When we make a loan, right away we try find an exit strategy, and in the event of a default, we have the infrastructure to step through in through our a development company or investment equity arm to step in and see the successful completion of the transaction.”
Benamu also noted that whereas the firm was previously underwriting loans for six months, it is now underwriting 12-month loans with the understanding that the takeout by banks will take longer in this market.
The offshore offering has a one-year lockup period and a 2% management fee with 20% incentive fee triggered by an 8% hurdle rate. The firm is also listing the fund on the Irish Stock Exchange on Jan.1 to provide its investors with “an additional level of credibility, transparency and oversight.”
In addition, WexTrust is also in discussions with institutional investors to manage a fund that would invest in distressed loans.
WexTrust is a principal investor in the U.S. and has underwritten debt and equity investments in excess of $1 billion to date. The firm currently manages over $500 million in total assets.