| James Dinan, York Capital Management (Bloomberg) |
James Dinan’s New York–based multistrategy hedge fund firm, York Capital Management, is raising money for a second version of its York European Distressed Credit Fund.
The firm hopes to close the fund — which it calls YEDCF II — on March 1 and raise between $500 million and $750 million for it, according to the firm’s fourth-quarter letter dated February 3 and obtained by Alpha. The fund will have kind of a hybrid structure. Like the first vintage, YEDCF II will have a drawdown structure, with a two-year investment period followed by a three-year harvest period. YEDCF I, which had its final close on October 2013, has called about 82 percent of its committed capital through December 2014.
“Given the opportunities in less liquid distressed situations, our team is confident in its ability to invest Fund II in highly attractive transactions in a timely manner,” says the letter, signed by Dinan and Daniel Schwartz, the firm’s chief investment officer, who has historically maintained a much lower profile than Dinan.
York stresses that its hedge funds may also invest alongside YEDCF II “in a manner consistent with their liquidity guidelines.”
The firm now manages $21.7 billion in hedge funds, up from $17.5 billion last year. It manages a total of $24.6 billion, according to the letter.
In addition, York says in the letter that on January 1 it soft-closed its York Global Credit Income funds. “Since inception, the funds have experienced healthy and consistent growth due to portfolio appreciation and investor subscriptions,” the letter states, noting that as of January 1 the strategy’s assets under management stood at $1.2 billion. “While the global opportunity set continues to offer attractive investment ideas and the funds have capacity, we believe this is in the best interests of investors at this time. This approach will help position the Funds to continue to remain nimble and fully invested.”
York also notes that earlier in 2014 it soft-closed the York Credit Opportunities funds and the York Select funds. In addition, the York European Focus funds “have been soft-closed for some time,” the letter says. York notes that when it soft closes a fund, it will generally continue to replace redemptions with new subscriptions on a quarterly basis. A spokesperson for York declined to comment on the letter.
York, founded in 1991, manages eight funds. By far the two largest funds are the $7.4 billion York Multi-Strategy Fund and the $7.2 billion York Credit Opportunities Fund. They were up 8 percent and 3.4 percent, respectively, in 2014, according to the quarterly report.
Looking ahead, York calls the backdrop “favorable” for U.S. stocks. “Measures of economic activity, including growth in non-farm payrolls, remain consistently positive and U.S. corporations continue to implement internal restructuring and cost savings programs to drive increased productivity and higher profit margins,” Dinan and Schwartz tell clients in the letter. “The reduction in crude oil prices will also prove to be a meaningful benefit to the U.S. consumer. These savings are likely to be deployed to alternative consumption channels driving a step-up in economic activity.”
This said, York says its enthusiasm for U.S. stocks is tempered by the likelihood of a Federal Reserve rate hike before year-end, which it believes will hold down further price-to-earnings multiple expansion, an important factor in recent stock gains.
“The strength of the U.S. dollar against major foreign currencies will also serve as a meaningful headwind to the reported earnings of U.S.-based, multinational companies in 2015 as compared to 2014,” York adds.
However, York thinks that the increase in shareholder activism has led boards of directors to “become more proactive in announcing actions to create shareholder value.” So, it is looking for another year of “robust corporate activity.”
York seems most bullish on European equities, saying 2015 “could potentially be a breakthrough year,” driven by ambitious quantitative easing by the European Central Bank, a lower euro, “unprecedented low rates and credit spreads,” lower oil prices and improving economic indicators.
“European equity indices could potentially outperform their global peers for the first time in many years,” York predicts.
On the other hand, York says it is “constructive” on Asia as many of the largest markets undergo interest rate easing, especially China and Japan. “Recent developments in Japan and China leave us particularly positive on our special situations portfolio,” it adds.
For example, in Japan, York points to the government’s focus on improving corporate governance. In China, York is optimistic on reform of state-owned enterprises.
“While markets have started the year with heightened volatility, we think that there is a broad range of opportunities present in Asia and that market sell-offs will provide attractive entry points for these opportunities,” the report states.
