Two years after joining forces with Ken Moelis, a New York-based asset manager is exciting Aussie investors with opportunities in US private credit amid a major banking crisis.
Ashees Jain, co-founder of Blue Elephant Capital Management, was in Australia to discuss private credit.
Speaking from the MA Financial offices in Sydney’s CBD, he explained to Money Management how his US$184 million ($275 million) private credit fund came under the radar of Wall Street billionaire Ken Moelis.
“It was about two years ago that Ken and some of the people in his firm made an introduction to the MA Financial team here in Australia,” Jain said.
Moelis currently sits on the board of ASX-listed MA Financial Group and is a major shareholder.
“We started talking and went through a major diligence process as we would with any other investor,” Jain explained. “One of the unique pieces that came about over the past two years was that we weren’t just managing money for Moelis. Blue Elephant was managing the money together with MA Financial.”
Earlier this month, MA Financial announced that it had acquired Blue Elephant and would soon be launching the MA Global Private Credit fund, which would give Australian and international clients access to asset-backed and specialist lending opportunities in the US credit markets.
Meanwhile, all eyes were firmly trained on the US economy as the Republicans and Democrats tried to agree on a solution to avoid a default. For MA Financial, which is betting on a recession, this is the ideal time to be lending.
“In that environment, there is an opportunity to provide credit to asset-backed and specialty investments,” Jain said.
“One of the advantages of private credit is that you get to write your own terms. What you find in the public markets is a take-it-or-leave-it approach. You don’t get to design the terms and put together a deal. With private credit, the ball is in our court,” he said. “We are experiencing a classic supply and demand issue. The terms are in our favour.”
MA Financial believed the Fed would keep rates higher for longer as it continued to battle inflation. Jain said the banking crisis, which was triggered by the mismanagement of interest rate risk, had accelerated a credit crunch across the US.
“That started before some of the regional banks failed,” Jain said. “The Fed is engineering a slowdown in response to inflation. They are going to let the data play out, and the data tends to lag. We are pricing for a recession.”
In the US, private credit was traditionally seen in the form of corporate cash flow loans to private equity sponsors conducting leveraged buyouts. But MA Financial would focus on asset-backed finance, lending to other lenders and writing term sheets on deals backed by receivables that, if worse comes to worst, can be carved out and sold off.
Since the acquisition of Blue Elephant, Jain has assumed the newly created role of co-head of MA Financial US Credit Investments. He shared the role with Blue Elephant co-founder JP Marra.
Jain confirmed he would travel to Hong Kong this week to meet with institutional investors before returning home to New York.
His Australasian tour was well-timed as the latest quarter had seen strong appetites for private market strategies.
The latest Manager Intelligence and Market Trends report from bfinance revealed 61 per cent of all new manager searches over the past 12 months targeted private market strategies, up from 45 per cent the previous year.
Meanwhile, the number of searches for equity managers had shrunk from 27 per cent of all searches to 14 per cent. The swing from equities towards private markets had contributed to a decrease in the average mandate size, from over US$90 million to US$75 million (excluding equity risk overlays).
