Investment in weapons trade, drift-net fishing or child labour will be ruled out Hedge-fund manager ADM Capital has partnered with the Asian Development Bank (ADB) to set up a fund that will invest in the region's estimated US$800 billion pool of non-performing loans (NPLs). Anchored by a US$20 million investment from ADB and roughly equal investments from seven other investors, including ADM, $138 million had been raised in the first tranche, ADM Capital director Christopher Botsford said. ADM will manage the fund, to be called the ADM Maculus Fund, and seek to buy out company creditors on a single asset or pooled basis, initiate financial or corporate restructuring, and then quit the assets at a profit. The target size of the five-year closed-end fund is US$500 million and once 75 per cent of the present tranche is invested - towards the end of the year - additional investments will be canvassed, including contributions from Asian governments and institutions. The Hong Kong government was approached to become an investor in the first tranche but declined, Mr Botsford said, despite the fact that the fund had an Asian 'development' nature no regional investors had contributed other than the ADB. 'We would like to see more investors coming from Asia in the second tranche,' he said. ADM Capital director Denys Firth said the fund would be managed to restore core operations of the target firms to the point where the assets could be sold. 'Our exit strategies could involve new debt - either by refinancing from local banks or bond markets - or equity, through sales to strategic buyers, private-equity deals or initial public offerings. We are a short-term solution to their problems and longer-term solutions will have to be found.' The fund would target an investment return for its members - mainly European and American pension funds - of 20 to 30 per cent, Mr Botsford said. 'The minimum investment we will make is US$5 million, because below that it would not be worth our time. So if the debt is priced at 10 cents in the dollar, there will have to be $50 million of debt out there,' he said. Geographically, the fund will seek investments in China, India, Indonesia, Malaysia, the Philippines and Thailand. Investments will be screened to comply with ADB environmental guidelines, which will rule out taking investments in firms engaged in such things as weapons trade and drift-net fishing, or those that employ child labour. 'Companies will have the chance to regain their operational viability, sustain their economic contributions to their markets and lessen the adverse impacts for stakeholders such as employees,' said Robert Bestani, director-general of ADB's private-sector operations department.
