HSBC Alternative Investments Limited (HAIL) has launched the HSBC Diversified Loan Fund, combining both loan investing and direct lending within a fully managed, alternative credit solution.
With circa USD550m raised so far, the first close for the fund was held on 31 October 2017 and the second one on 19 January 2018. The final close is planned no later than April 2018.
The fund is a diversified, core loan solution for client portfolios and will primarily invest in floating rate, senior secured credit instruments such as syndicated loans, as well as senior secured and unitranche loans to middle market companies. The combination of loan investing and direct lending increases the opportunity set for the fund and enhances diversification – HAIL anticipate circa 300-400 underlying positions within the fund once it is fully invested. These investments can be made in North America, Europe and Asia.
William Benjamin, Head of Hedge Funds, HSBC Alternative Investments Limited, says: “The opportunities in both global loan and direct lending markets have increased considerably in recent years, driven by a number of factors – including regulatory changes regarding bank capital requirements, increased private equity buyout activity and increased M&A activity funded by debt. Using HSBC’s long established due diligence process, we have identified and appointed experienced fund management groups to manage custom mandates of loan and direct lending portfolios4.”
Syndicated and direct loans can offer a yield premium to high yield bond markets for what can be an equivalent level of credit risk. Such loans are often floating rate and senior secured. The floating rate nature of these investments may provide a degree of protection against rising interest rates. In addition, a focus on senior secured loans offers greater security in the event of default, compared with high yield bonds, as well as the potential for much higher recovery rates.
