US credit fund benefits as Europe’s institutions recommence seeding strategies

Europe’s institutional allocators have continued steps back into fund seeding by committing $40m to a high yield credit portfolio at US-based Phoenix Investment Adviser.

The firm’s JLP Institutional Credit Fund began with $3.5m of in-house money in January 2011, but the external money from a large European financial institution will grow these assets more than 10-fold.

Mike Donoghue, Phoenix’s President, said his firm was aided in securing such a large early commitment by the fact it manages over $500m in aggregate, and its flagship JLP Credit Opportunity fund has nine years of history investing in a similar bond strategy to that of its new portfolio.

The seeding is understood not to be the first such investment the unnamed European allocator has made to funds.

It is not alone. In Spain, a family office recently helped seed an onshore Luxembourg Colombian equities strategy, run by Bolsa y Renta. An unnamed German insurer did, too – throwing into question the contention the statement from one German fund marketer that seeding “is not really a German activity”.

Pheonix’s Donoghue acknowledges there is “not as much seed money as there used to be” in Europe, “and we had lots of detailed discussions through the last seven months or so, before closing the final deal last month.

“It was really hard to raise money for smaller funds in the wake of the 2008/2009 crisis, and after that period a lot of investors just went for the biggest brand name funds. But now we see a bit of a trend with allocators being more open to consider smaller managers. When you get very large you become like an index and it becomes more difficult to outperform.

“We think we can outperform because we are much more nimble than some bigger players. Additionally, the fee discount can make a large difference over time in.”

Phoenix is taking its new fund on a ‘founders round’ of fundraising, seeking up to $150m more, offering “fee discounts substantially below the going rate.”

In the case of Phoenix’s latest European seeder, they preferred slightly lower fees plus a 20% share of fund revenue – in return for which they committed cash for two years.



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