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The asset-based
lending industry
after the disaster
end of August 2009. Like
Altcmativcs many ABL funds, Still-
water's strategy comprised
Hedge funds with an ARL strategy found loans, of less than 12
themselves paralysed by the credit crisis. months, to importers,
exporters and energy
Many rusa,ppeared, some morphed into remarketers looking for
equity owners and other niche funds temporary loans against
receivables; and medium-
survived. Eric Uhlfcldcr rep0l1s tenn loans or between 12-36
months to law, real estate,, ABL funds

efore becoming a and life assurance groups
hedg\! fund manager, returned 12.7 per cent in against pending settle-
ROlli DersovllZ waa a 2007 (before the recent ments, propeny, and poli-
lawyer who knew first-band crisis). Performance cies, respecttvely.
the cash flow challenges dropped off the following Paradoxically, it WaB not
confronting attorneys who year to 5.3 per cent before realised losses that dis-
work on contingency. With picking up in 2lJO!l to 6.2 per rupted Stillwater and many
legal settlements being cent. But this waa signifi- other ABL funds, but rather
fairly iron clad, he decided cantly affected by survivor when bankB suddenly
to jump occupational aisles hias, which bolstered pulled their leverage facili-
and set up shop providing returns and belled the story ties from funds or funds
short-term loans 10 lawyers that was evolving. that had been investing
against fees assured The shutdown of the in Stillwater. While this
through settlements. credit market made it diffi- improved bank liquidity at
Since establishing his spe- cult for borrowers to refi- the likes of Belgium KBC
cialised asset-based lending nance after their loans and French BNP Paribas, it
fund - RD Legal Capital - in matured. The cushion of had a disastrous effect on
October '}fJ(fl, he has never high asset-to-loan ratiO!l col- the ABL industry. It
had a down month. inves- lapsed, hitting ABL balance revealed liquidity risks
tors, who receive cumula- sheets. And unprecedented when assets and liabilities
tive preferred notes, earn a levels of investor withdraw- are mismatched.
fixed 13.5 per cent a year. Funds of funds were sud-
As the fund's sole principal, denly forced to redeem from
Mr Dersovitz is left with 'More than 150 underlying funds, and there
annualised profits of 1.5 per asset-backed was not enough liquidity or
cent or the total assets - new money coming in to
$77m (t48.5m, €S8.5m) at lending funds are offset unprecedented out-
the end or May. winding down or flows. Investments rrom Alraan _Ill one of the many types of assets some fUnds decided n was better to own AIoJry
Mr Dersovltz's fund char- funds of funds sharply
acterises the appeal of reorganising into declined. In October 2lJ08,
asset-based lending. While 2S ABL FoFs with more are structured along loans loans. The fund WaB up by secured lender at annual-
ABL managers aro con-
new funds' than $Uhn in assets were of various maturities that more than 50 per cent in ised rates of 14-18 per cent.
cerned how a business rnporting to HFN; as of the even in a stable llCOnomic 2009 and 5.2 per cent Manager Pablo Marino
makes money, Its risks, als fon:ed many funds to first quarter 2010, the environment can't be through the first five hedg\!s foreign exchange
past performance and pros- gate or suspend their funds number fell to live with less quickly unwound, espe- months or Wto. risk and his spread is about
pects, they are more to avoid fireselling assets.. than $92m in assets. cially when involving long- But some small, well- 900 basis points over his
focused on the value or a While It does not track To meet redemptions, er-term assets such aa real rocused ABLs have not own financing costs.
particular asset against the entire ABL universe, ABL funds initially sold off estate," says Mr Kanterman. needed to morph into More recently, Mr Marino
which they aro lending. By HFN reported 92 funds in the most liquid, desirahle For many ABL managers, equity owners. has looked c10seT to home.
doing this, the odds of gl!t- its index at the end of 2008, assets. But that failed to the flIlllIlcial crisis and the Since starting up in the ~Though we originally
ting repaid If a business three shy or the peak raise enoogh capital. So to suhsequent fall in asset val- autumn or 2003 as a short- sought to support Interna-
fails Increase. reached two quarters ear- protect investor equity and uations prompted a shift in term lender of first mort- tiona! trade, we now see
ABLs lend against a wide lier. Yet, by the end or 2009, asset values, most ABL strategy away from pure gage bridge loans for com- l!Ven greater opportunity in
variety of assets: real the number was almost cut funds gated or suspended lending toward greater own- mercial and multi-residen- lending to solid small busi-
estate, accounts receivahles, in half, with only 51 funds redemptions. ~ABL funds ership of assets. tial properties, the W Finan- ness here in the states, aB
inventory, film distribution reporting as funds clll!led David Shiff, manager of cial Fund has produced local banks fail to boost
rights, and life aasuranoo or simply chose to stop Perella Weinberg's $362m annualised returns of lending." Two-thirds of his
policies - about :JO different reporting because of poor Asset-Based Value Fund, 10.4 per cent to June. The loans are now strictly
such categories in all. performance. realised early on that with ~ fund has never fore- domestic.
While the practice of Jonathan Kanterman, valuations falling drasti- closed on any loans and Since inception in 0cto-
lending against assets is aB managing director at New cally, the fund could be bet- has oot suffered a single ber 2006, the fund's net
old aB the hills, aB a hedg\! York-based Stillwater, ter off owning assets. down month. According to annualised return has been
fund strategy, It dates hack which had run as much as Assets in his portfolio principal Gregg Winter, the U.8 per cent through June,
only 20 years. It took off ,Ibn in several ABL funds include aircraft, railroad rund's success is hased on with only four losing
after the 200G-2002 market and funds of funds, cars, and barges; trucks and lending against assets months. So successful is
meltdown aB institutional observed thai ~more than containers: and office and of improving value sup- Savile that Mr Marino says
managers scurried for 150 asset-backed lending restaurant equipment. ported hy quality or loca- he could easily TlIise twice
investments that were sim- funds that had three-year As the financial cri- tion, sponsorship, and low the capital.
ple to undel'litand, transpar- track records or more. with sis deepened, acquisition costs. BUI like many niche
ent, and a more effective at least ,IOOm, are winding Mr Schiff found The $33m Savile Opportu- asset-hased lenders, Mr
cap on downstde risk. ABLs down or reorganising tnto greater opportunity nity Fund haB also contin- Marino says greater size is
were not going to make new funds". in buying second- ued to find lending opportu- not necessarily better. He
anyone rich. But the idea of His firm's flagship Still- ary loans at deep nities. It provides short- limits asset growth know-
consistent returns of 8- t2 water Asset-Backed Off- discounts from term trade financing to Ing that when financials
per cent a year sounded shore Fund, which had distressed own- Latin American companies start to lend and invest
very appealing after portfo- more than $3OOm, had ers, such aa from with annual sales or no again, his margins and
liO!! crashed in the tech enjoyed live-year annual- banks In receiv- more than $5Om, lending capacity to fmd suitable
wrnck. ised returns of approxi- ership, instead or against accounts receivable borrowers may become
According to data tracker mately 7 per cent until the originating new where there Is 00 other more challenged.