Valiant Capital Management — the San Francisco–based, globally oriented long-short equity hedge fund founded by Tiger Management descendant Christopher Hansen — is raising money for a new hedge fund designed to invest in stressed and distressed securities in India.
The firm aims to raise $500 million for the Valiant JM India Opportunities Master Fund, with a hard cap of $750 million. An initial closing is expected to take place on December 1, according to the fund’s offering document, obtained by Alpha. The fund will have a drawdown structure more akin to private equity funds.
The new fund will be managed in a partnership with JM Financial Asset Reconstruction Co., a Mumbai, India–based firm that acquires, revamps and securitizes nonperforming and distressed assets from banks and financial institutions. The new fund, which requires a minimum investment of $10 million, will charge a 2 percent management fee and a 20 percent performance fee, which “will not crystallize” until the investor’s principal has been returned. Under the deal, Valiant will pay JMF ARC 160 basis points — or 1.6 percent — of the 200-basis-point management fee for sourcing, research, loan servicing, valuation and workout, or the process of financially revitalizing companies.
Valiant emphasizes that unlike most distressed securities funds, it does not expect to operate or turn around the assets that it buys. Instead, it plans to “foreclose on and sell assets to a predetermined buyer” or “negotiate a promoter workout in cases where the underlying asset value is above the debt on the business,” according to the offering documents.
Hansen, a so-called Tiger Grandcub because he was previously a managing director at Tiger Cub John Griffin’s Blue Ridge Capital, founded Valiant in August 2008. After racking up roughly double-digit gains in his hedge funds Valiant Capital Partners and Valiant Capital Partners Offshore in each of their first four full years of operation, Hansen ran into a rough stretch, losing money in ten out of 12 months at one point. The funds lost nearly 13 percent in 2013, when the S&P 500 index of U.S. stocks gained more than 30 percent.
However, Hansen now seems to have righted the ship. After posting a gain of nearly 5 percent in the fourth quarter of 2013, the funds have risen 7.32 percent for the first ten months of 2014 despite suffering a small loss in October.
The global long-short hedge funds, which at the end of October managed nearly $2 billion — excluding $483 million in side-pocket investments — have traditionally been heavily skewed globally, especially in India. For example, at the end of October, the hedge funds were 27.6 percent net long India. They were 31 percent net long India at the end of May and 27 percent net long at the end of March. This big bet on India and other emerging markets hurt the funds badly in the past, especially during emerging markets’ rough ride in the first seven months or so of 2013. That’s when the Indian stock market fell nearly 8 percent before rebounding, and Brazil’s dropped 28 percent before rebounding somewhat.
In laying out the opportunity for the new fund in the offering document, Valiant says there is an estimated $120 billion of nonperforming assets in India and restructured assets built up by public sector banks. However, there is less than $1 billion in capital raised to invest in distressed Indian debt.
Valiant stresses that these days, the Indian central bank “is focused on cleaning up the banking system in order to improve the financial stability and free up capital to support economic growth.”
Meanwhile, Valiant says Reserve Bank of India governor Raghuram Rajan “has substantially improved the regulatory framework, looking to expedite asset sales, facilitate price discovery and streamline the recovery process.”
Valiant is also confident that India’s economic growth will further accelerate under Prime Minister Narendra Modi, who has been in office since May. “Since taking office last year, RBI Governor Rajan has made several key changes to applicable regulations to encourage price discovery and expedite debt restructurings/resolutions,” Valiant states in its document.
The investment period for Valiant’s new India-focused fund will end April 30, 2016, with the chance for two six-month extensions. The fund is designed to wind down five years from the end of the investment period, with one six-month extension at the general partner’s discretion and one six-month extension at the discretion of a majority of the limited partners.
“Drawdown funding coupled with a short investment period should enable efficient deployment of capital, capturing two fiscal year-ends and taking advantage of the supply-demand imbalance or quickly returning capital to investors,” the document emphasizes.
