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Singapore firm launching fund targeting BBB, BB tranches of U.S. CLOs

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Mindful Wealth Pte Ltd. an investment firm based in Singapore, is raising money to put to work in some of the riskier tranches of U.S. collateralized loan obligations.

Avenida CLO Bond Fund, which is being seeded with $30 million, will primarily invest in low investment grade (triple-B) tranches of notes in portfolios issued by the top 15-20 U.S. CLO managers, according to the fund investment manager, Federico Cristina.

Mindful Wealth already runs a fund focused on even riskier tranches of CLOs, known as the equity, which is unrated. Cristina said the CLO Bond Fund can attract broader interest in because of the attractive rates currently offered on BBB (and also high speculative-grade BB) tranches. And since these securities account for a much larger portion of a CLO's capital stack, there is a lot more available for purchase. Mindful Wealth thinks it could raise as much as $200 million to $250 million for the fund.

The BBB- and BB-rated bond tranches "are more liquid, and there is more paper around,” Cristina said. “It’s much more scalable than the equity.”

By comparison, the firm's CLO equity fund, which was launched in March 2016, has some $85 million in assets. It holds equity stakes in 18 CLOs issued by top U.S. CLO managers including Voya Alternative Asset Management, Apollo Credit Management, CIFC and KKR.

The bond fund's target yield is 5%, according to an investor presentation.

The new fund will be led by two principal partners, Alberto De Micheli and Massimo Paschetto — both of whom are former Credit Suisse directors in private wealth and leveraged finance. Cristina and fund manager/director Stefeno Pachetto will be a part of the fund's committee.

Both De Micheli and Massimo Paschetto joined Mindful Wealth two years ago as the firm debuted its CLO equity fund. Cristina said the two have decades of experience and close ties to major U.S CLO managers. De Micheli was a former CS director involved with CLOs, leveraged finance and private wealth out of UAE, while Paschetto was a pre-crisis era managing director at Credit Suisse in leveraged finance and structured products.

(“Avenida” is the Portuguese and Spanish translation of “avenue.”)

A Mindful Wealth investor presentation did not mention whether the fund plans to make occasional investments in senior note, triple-A classes of CLOs (the investments are expected to have a blended rating average of triple-B). But the bond fund will exclude the riskier single-B tranche investments, which are handled by the firm’s equity fund.

Most of Mindful Wealth’s target investor groups for the Avenida bond funds will based primarily in Singapore, China, Brazil and portions of Europe. The two CLO funds are among the firm’s six global fund vehicles that also target Asian bonds, distressed real estate and sustainable social/environmental-based investments. Its current investor base is served by its seven international offices is primarily from Singapore and the United Arab Emirates.

The predecessor firm of Mindful Wealth (EOF Services) was co-founded as a Swiss consultancy by Mindful CEO Marco Frangi.

Both funds are based in the Bahamas, but Mindful Wealth plans to transfer the two funds to Singapore to take advantage of loosened foreign-fund structure rules in the Southeast Asian city-state. The adoption of the Singapore Variable Capital Co. (S-VACC) regulations aims to raise Singapore's profile as a preferred destination for asset managers who otherwise locate in operationally opaque and tax-friendly fund domiciles such as the Cayman Islands.

The S-VACC rules are slated to be in place by early 2019.

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