David Stevenson: The alternative credit space

Date: Wednesday, August 5, 2009
Author: FT.com

I’ve mentioned in my column before that I sense one of the biggest opportunities over the next few years will be in the alternative credit space – smaller, nimbler firms moving into the commercial lending space vacated by the big high street banks in the UK and the US. A couple of weeks back I mentioned the UK listed, but US focussed Psource hedge fund which was – and is – trading at pretty chunk discount to NAV (although that discount has narrowed a bit since then).

Another fund has come on to my radar in the last two weeks – it’s called the Marwyn Alternative Capital fund. Marwyn is a pretty respected fund manager in the private equity/active investor space and this new fund will be listed on something called the specialist funds market.

This slightly strange new market is designed for institutional investors and features a very small number of outfits including a specialist small cap mining investor. It is actually open to private investors and when I talked to my broker – Hargreaves Lansdown – they said it was fairly easy to access but that liquidity was poor and spreads high.

Anyway back to Marwyn’s new fund. I asked James Glass at Numis to have a look at the similarities with Psource and its fairly unique model which involves lending ‘growth’ capital to small cap firms in the US with equity kickers (convertibles and warrants) thrown in. The first key difference is that the Marwyn fund will provide capital to companies experiencing short-term liquidity or refinancing problems whereas the PSource fund typically provides growth capital and are a senior secured stakeholder.

There’s another key difference - PSource is North American focussed whereas the Marwyn fund is much more UK and European focussed. It’s also worth remembering that the legal structure for insolvencies varies greatly in Europe and there’s much more protection for investors in the US system than here in the UK where equity investors are frequently wiped out in a bankruptcy. Crucially the underlying business model also looks very different – the Marwyn vehicle will work alongside Royal Bank of Scotland, lending to European businesses while Psource works independently of banks via a hedge fund called Laurus Capital which does the hard work of sourcing the deals.

Despite the differences I sense that the Marwyn fund could be an interesting idea for very adventurous types – I’ll report back later on in August as I track down more information on this fund.

David Stevenson is also one of the Four Wise Monkeys at the online TV investment programme www.4wm.co.uk

adventurous@ft.com