Cheyne Capital's listed Real Estate Credit Investments hedge fund has increased cash holdings to take advantage of market dislocations, as it harvests some attractive profits from a similar strategy it pursued in difficult markets about a year ago.
Cheyne Capital’s listed Real Estate Credit Investments hedge fund has increased cash holdings to take advantage of market dislocations, as it harvests some attractive profits from a similar strategy it pursued in difficult markets about a year ago.
RECI’s cash reserves now stand at £15m.
Europe’s real estate bond market, in which the £80m portfolio makes its purchases, has already provided good buying opportunities for the cash.
The instruments that the team, under manager Shamez Alibhai (pictured), bought in July yielded, on average, 9.94%. They were bought by RECI, on average, at a 31% discount to their par value.
This average discount was the widest RECI’s buying achieved since March, and produced the most attractive month’s buying in terms of weighted average purchase yield since March, too.
(The corresponding buying statistics for March were a 34% average discount to par, and a 13.48% weighted average purchase yield.)
The largest 10 positions in RECI, representing £30.5m, have a weighted average effective yield of 11.8%, and because RECI is itself a listed company, whose shares trade at a current 26% discount to fund-NAV, investors can buy into this cheaply.
The instruments RECI decided to sell in July were realised, on average, at 4% above the relevant instruments’ face value.
Alibhai says: “Some of the bonds we had bought at discounts to par between November and February have performed extremely well and have had realisations at par because real estate sponsors have repaid their loans earlier than expected.”
He emphasises the above-par sales last month were welcome but do not reflect the entire RECI portfolio, which forms part of a larger $1bn real estate debt strategy at Cheyne.
'Excellent growth opportunity'