Credit risk is no longer a popular term among mutual fund (MF) investors after the Franklin Templeton crisis that shook the MF industry in March 2020. From managing ₹61,837 crore of assets under management (AUM) before FT crisis, the credit risk MFs now manage ₹24,687 crore of AUM, which translates into a decline of about 60%.
On the other hand, banks and non-bank financial companies (NBFCs) are constrained in terms of the type of credit exposure they can take, due to regulations stipulated by the Reserve Bank of India.
This has given an opportunity to alternative investment funds (AIFs) to steadily increase their activity in the private credit space. In 2022, the deal value for AIFs in the private credit space stood at $2.3 billion (₹18,926 crores). According to industry experts, performing credit space is where a sizeable amount of new AIF flows is getting deployed.
Consultancy firm EY in a report in November 2021, said the opportunities in the performing credit market were expected to range between $39 billion and $89 billion over the next five years.
PERFORMING CREDIT
Performing credit refers to lending to companies that are running their business on an ongoing basis, have a long track record and are profitable at Ebitda-level (earnings before interest, taxes, depreciation and amortization). These funds don’t invest in entities where the businesses are no longer viable or are in distress.
Aakash Desai, Chief Investment Officer & Head - Private Credit at 360 ONE Asset (formerly IIFL Asset Management), puts it, “For us having a really strong and verifiable track record is important, governance of the promoters is important, fairly stable financials are important, payment track record is important. If you look at all of these aspects, you will typically get solvent-growing profitable businesses, which are by themselves fairly stable, but have a requirement that is fairly unique and can’t be met by conventional lenders. That is how we would define performing credit," Desai says.
WHAT CAN INVESTORS EXPECT
AIFs are meant for ultra-high net worth and high net worth investors who have adequate surplus to park for a longer tenure. AIFs are close-ended and in performing credit space, the tenure of funds can range between 3-5 years. AIFs require a minimum investment of ₹ 1 crore.
Depending upon the strategy followed by the fund, investors can expect returns of anywhere between 10-14% on a pre-tax, post fees and expense basis. These funds can offer higher yields than regular debt investment products but also come with higher risks.
Like with any credit risk strategy, there can be default risks. The security taken by the AIF, whether through hard collateral, promoter’s personal guarantee, etc. can help with recovery, but still, credit risks cannot be wished away.
Performing credit AIFs are set up as category II AIFs, which have been accorded a pass-through status. That means capital gains from these AIFs are taxed in the hands of the investors, in the same manner as if these investments were held directly by the investors. Performing credit AIFs typically make quarterly payouts to investors, which are essentially coupons received by investee companies.
These AIFs have a hurdle rate of 10-13%, depending on the asset manager and underlying exposures. The hurdle rate is the minimum return fund required to deliver before the asset manager can charge a performance fee.
Looking for the agility of a start-up and the gold standards of an established financial institution? 360 ONE Asset is the perfect sweet spot for you.
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This webpage is not suitable for everyone and it is designed for investors who are knowledgeable and experienced in the financial services market and in investment products of this nature. You should not use this webpage unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that the webpage and the Funds are suitable for you in light of your circumstances and financial position. You should always seek individual advice from your own legal, financial, tax or other advisors before making an investment or otherwise in relation to the Funds. You are responsible for ascertaining the legal requirements which would affect your acquisition or sale of any securities or investment. You should base any decision to invest in the Funds on the advice you receive from your own advisors and on the basis of the information contained in the documents contained on this webpage (e.g. prospectuses, simplified prospectuses or key investor information document).
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We may change these terms and conditions at any time by updating these pages.
Please read this important information before proceeding, as it contains important legal and regulatory notices relevant to the content of this webpage.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
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We may change these terms and conditions at any time by updating these pages.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
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The content of the webpage is for information purposes only and you should not take the information contained in this webpage as constituting an offer, solicitation, inducement, commitment or invitation to subscribe for or to purchase, sell or hold any interest in any of the Funds or any other entity. Nothing on this webpage or in the materials referred on the webpage constitutes or is intended to constitute financial, tax, legal or other advice.
This webpage is not suitable for everyone and it is designed for investors who are knowledgeable and experienced in the financial services market and in investment products of this nature. You should not use this webpage unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that the webpage and the Funds are suitable for you in light of your circumstances and financial position. You should always seek individual advice from your own legal, financial, tax or other advisors before making an investment or otherwise in relation to the Funds. You are responsible for ascertaining the legal requirements which would affect your acquisition or sale of any securities or investment. You should base any decision to invest in the Funds on the advice you receive from your own advisors and on the basis of the information contained in the documents contained on this webpage (e.g. prospectuses, simplified prospectuses or key investor information document).
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The content of the webpage is for information purposes only and you should not take the information contained in this webpage as constituting an offer, solicitation, inducement, commitment or invitation to subscribe for or to purchase, sell or hold any interest in any of the Funds or any other entity. Nothing on this webpage or in the materials referred on the webpage constitutes or is intended to constitute financial, tax, legal or other advice.
This webpage is not suitable for everyone and it is designed for investors who are knowledgeable and experienced in the financial services market and in investment products of this nature. You should not use this webpage unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that the webpage and the Funds are suitable for you in light of your circumstances and financial position. You should always seek individual advice from your own legal, financial, tax or other advisors before making an investment or otherwise in relation to the Funds. You are responsible for ascertaining the legal requirements which would affect your acquisition or sale of any securities or investment. You should base any decision to invest in the Funds on the advice you receive from your own advisors and on the basis of the information contained in the documents contained on this webpage (e.g. prospectuses, simplified prospectuses or key investor information document).
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We may change these terms and conditions at any time by updating these pages.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
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We may change these terms and conditions at any time by updating these pages.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
IIFL Fund is an investment company with variable capital (SICAV) incorporated in Luxembourg and authorised under Part I of the law of 17 December 2010 on undertakings for collective investment, which implements Directive 2009/65/EC of 13 July 2009 (recast) on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investments in transferable securities (“UCITS”). IIFL Fund is listed on the official list of UCITS approved by the Luxembourg supervisory authority, the Commission de Surveillance du Secteur Financier (“CSSF”). Such listing does however not require any Luxembourg authority to approve or disapprove either the adequacy or accuracy of the webpage, the prospectus of the Funds or the assets held by the various sub-funds of the Funds. Any representations to the contrary are unauthorized and unlawful.
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This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
The Funds are not subject to any form of regulation or approval by the Dubai Financial Services Authority ("DFSA"). The DFSA has no responsibility for reviewing or verifying the information contained in the documents contained on this webpage (e.g. prospectuses, simplified prospectuses or key investor information document). Accordingly, the DFSA has not approved the information contained in those documents nor taken any steps to verify the information set out therein, and has no responsibility for it.
We may change these terms and conditions at any time by updating these pages.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
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We may change these terms and conditions at any time by updating these pages.
This webpage contains information in relation to an open ended fund with sub-funds (the Funds) operated under the requirements of the European Union’s Directive in relation to Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated by Commission de Surveillance du Secteur Financier (CSSF), Luxembourg. The address of the CSSF is 2, rue d’Alsace L-1122, Luxembourg.
For marketing and information purposes by IIFL Wealth (UK) Limited. Representative in South Africa for the Funds : Ashburton Management Company (RF) Proprietary Limited, 3rd Floor, 4 Merchant Place, 1 Fredman Drive, Sandton, 2196. IIFL Fund is approved under Section 65 of the Collective Investment Schemes Control Act and in accordance of Board notice 257 of December 13, 2013 of the Collective Investment Schemes Control Act. Prospectuses, simplified prospectuses, the articles of association or the management regulations as well as annual and semi-annual reports of the Funds are available free of charge from Ashburton Management Company (RF) Proprietary Limited. Before investing in a product please read the latest prospectus carefully and thoroughly.
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