We are pleased to share with you several new investment opportunities and their timings.
10 May 2021
Tanarra Investor Update Letter
Click below to download the Tanarra Investor Update Letter or read below
Forthcoming Tanarra Funds
We are pleased to share with you several new investment opportunities, together with estimated timing for each.
We would also like to thank those of you who have proactively contacted us in the last couple of months and appreciate your patience as we formalised these offerings.
LTV Fund II
Building on the strong performance and alpha generation from LTV Fund I, Tanarra is launching our second fund in this investment strategy, which endeavours to apply a private equity-style philosophy to non-controlling investments in publicly listed companies.
LTV Fund II’s objective will be to provide investors with a high conviction, concentrated portfolio of Australian and New Zealand listed public companies, with a value or growth proposition that can be unlocked by the Fund working constructively as a shareholder with boards and management teams.
The Fund intends to acquire stakes primarily in S&P/ASX300 and/or NZX50 companies either on-market or by direct placement. It is envisaged that the portfolio will comprise typically 6 – 12 high conviction investments at any given time, with target returns more than the S&P/ASX 300 Accumulation Index over the medium term (net of fees).
Our experience with LTV Fund I has convinced us there is a substantial and an underserved market opportunity in this space that can generate good alpha for investors, due to the rising impact of short-termism in listed markets and the shift from active to passive investment management. As of the date of this letter, we have generated alpha of 16% over the S&P/ASX300 benchmark in LTV Fund I (note: past returns are not indicative of future returns).
Vid Rangaswamy, who has been a core team member leading our LTV Fund I efforts, will move into the day-to-day portfolio management of LTV Fund II, with John Wylie remaining as a key part of the investment and advisory team.
LTV Fund II is launching now, with the first close no later than 30 September 2021. We are pleased to confirm good preliminary interest from cornerstone investors in mandates associated with our initial LTV Fund I in support of this follow-on Fund. We envisage managing more than A$1 billion through a combination of a pooled LTV Fund II vehicle and individual LTV Fund II mandates. We are happy to provide the Fund Private Placement Memorandum to eligible investors.
Tanarra Credit Partners (TCP) – Fund II
After the successful deployment of the TCP Asia-Pacific Fund I and associated mandates, the TCP team is bringing its second fund to market, TCP Asia-Pacific Fund II (TCP Fund II).
Since inception of Fund I, TCP has committed in excess of A$405 million into 25 investments. Careful portfolio construction, credit selection and risk management has achieved returns of BBSY +6% (as of the date of this letter) through a diverse pool of modestly leveraged, generally defensive corporate credits with no credit impairments or losses. Note, past performance is not a reliable indicator of future performance.
TCP Fund II seeks to deliver strong, recurring cash flows and yield through its primary focus on senior secured loans with appropriate investor protections. It is designed to protect capital, complemented by select senior secured growth capital, mezzanine and subordinated investments. The Fund is targeting net returns of 7.00 – 8.00% over BBSY.
The core investment target for TCP II is sub-investment grade loans to corporates and private equity-owned companies, one which TCP believes offers excellent long-term growth due to the funding gap created by the pull-back by the domestic banks from sub-investment grade corporate lending due to regulatory and capital constraints, and the continuing rise in impact of PE firms in Australia’s financial markets. TCP believes that private credit will continue to take share from the traditional banking system in these markets due to the shift towards institutional lending structures prevalent in the US and European markets, and rising incentives for the domestic banks to focus on secured home lending under Basel 3 and other regulation.
The Fund will be open-ended and offer investors quarterly redemptions following an initial two-year lock-up. Investors with specific risk/return parameters will also be able to invest directly into a lower risk/return senior secured sub-fund with target net returns of 5.00 – 5.50% over BBSY (6.50 – 7.00% for the levered option) or a higher risk/return opportunistic sub-fund with target net returns of 9.00 – 10.00% over BBSY).
The Fund will have an investment remit in Australia, New Zealand and Asia, predominantly in Australia.
Core team leaders for TCP Fund I Peter Szekely and Graham Lees will be Portfolio Managers for TCP Fund II, supported by a highly experienced team. Peter is based in Hong Kong and Graham in Sydney. We are delighted that the highly respected business leader Christine Christian AO (former President of Chief Executive Women) is joining the Board of TCP as Independent Chair. TCP Co-Founder Michael Tierney retains a key involvement in TCP as a shareholder and advisor. Long-standing New Zealand debt market specialist David Smith has also joined as a Senior Advisor.
As with the LTV Fund II, TCP Asia-Pacific Fund II is launching now, with first close intended for no later than 30 September 2021. We are pleased to confirm preliminary interest of approximately A$250 million from cornerstone investors in mandates associated with our initial TCP Asia-Pacific Fund I to this follow-on Fund, which (together with associated mandates) is envisaged to be at least A$500 million. We are happy to provide the Fund Private Placement Memorandum.
Tanarra Restructuring Partners – Fund I
We are delighted to announce that Tanarra has formed a new partnership with Ian Carson and Lindsay Maxsted, two of Australia’s most experienced and respected restructuring experts, to launch a new fund focused on distressed debt and special situation credit investments. They will be supported by Michael Phillip, a highly experienced investor in this asset class, as CIO. The business is called Tanarra Restructuring Partners (“TRP’).
TRP’s proposed new fund, the Tanarra Australian Recovery Fund (“TARF” or “the Fund”) is intended to provide investors with exposure to senior ranking debt in the turnaround of quality businesses with stressed capital structures due to COVID-19, dislocations in industries, simple overleveraging, or other periodic cyclical events.
The Fund can be conceptualised as a hedge strategy for investors in financial markets buoyed by ultra-cheap money and an inclination to discount or ignore traditional cautionary signs, with many potentially significant economic speedbumps lying ahead.
The Fund will focus on Australian and NZ companies in the enterprise value range of $25 – $250 million. The Fund will endeavour to bring a combination of financial and private equity skills to execute a positive turnaround for investee companies. It will generally invest via senior secured debt or convertible notes to provide investors downside protection with equity upside. Exits will take place by refinance, trade sales or IPOs.
TRP will endeavour to bring a strong ESG framework to its investment style and will aim to optimise employment and ESG outcomes for investee companies, despite the pressures they face. Tanarra considers this to be a material point of difference in this asset class vis-à-vis competitors. We also believe it should assist in securing quality deal flow from banks and owners interested in broader stakeholder interests, and that it can be achieved without significant negative impact on overall investment returns.
A total Fund size of A$300 million is anticipated with target level returns on 12-15% IRR.
TRP’s Fund I is launching now and intends a first close on 30 June, given early demand in the market for this innovative strategy and its approach to supporting companies in the post COVID-19 recovery. Initial preliminary commitments have been received.
Private Equity – Fund I
Our Private Equity team, led by Maja Sliwinski and Tom Forde, will be looking to raise a long-term investment fund in private equity in FY2022, avoiding the time-based problems of traditional funds with defined buying and selling periods.
We currently have a portfolio of four private equity investments made over the last 24 months. We believe these to be very high quality businesses with strong growth prospects across a broad range of sectors including resource/health and safety-tech, health and aged care-tech, and organic dairy. Our PE team considers each of these typical of those founder-led, entrepreneurial companies where Tanarra can bring operational, transformational, and capital support to assist with growth during their next chapter.
We will release further information about this Fund’s strategy and target returns in coming months.
We would be delighted to discuss any of these investment strategies with you across our range of diversified alternative asset classes.
This document and the information contained in it has been prepared by Tanarra Capital Pty Ltd ACN 114 164 331; AFSL 290098 (Tanarra or Company). This letter contains summary information and does not purport to be complete.
This letter does not constitute financial product or investment advice nor take into account your investment objectives, taxation situation, financial situation or needs. This letter will not form the basis of any contract or commitment, and it is not intended to induce or solicit any person to engage in, or refrain from engaging in, any transaction or to participate in any of the investment opportunities referred to.
Any forward-looking statements, opinions and estimates provided in this letter are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Such statements, including projections, guidance on future performance, and estimates are provided as a general guide only and should not be relied on as an indication or guarantee of future performance.