Allegro launches A$200m turnaround fund

The special situations firm is capitalising on an increased demand from LPs interested in accessing distressed credit situations in Australia.

Allegro Funds has launched its second turnaround and special situations vehicle with a target of A$200 million (€138 million; $187 million), Chester Moynihan, managing director at the firm, told Private Equity International. Park Hill Group will act as the placement agent for the fund. 

The fund will invest in Australian and New Zealand businesses experiencing financial, operational or market dislocation – situations becoming increasingly common in Australia. 

“There are very strong insolvency or creditor laws and in particular director liability laws that place personal liability on a director whilst a business is insolvent. You can argue that what that does is encourages resolution, so the directors are very motivated to resolve these issues.”

Moreover, as a result of Basel III regulations, banks are now looking to sell their growing amounts of debt, producing more opportunities, Moynihan said. Australia now has A$27 billion in non-performing loans, compared to just A$4 billion prior to 2008, according to data from the Reserve Bank of Australia. 

“Since the global financial crisis in 2008, domestic banks have come under increasing pressure to provision for their non-performing loans and to put them on their balance sheets as non-performing loans,” Moynihan explained. 

The firm already has A$50 million of support from its existing domestic LP base and will be targeting both international and domestic LPs for the balance of the fund. The firm is also offering co-investment opportunities to its investors as it “recognises there is a big demand out there for co-investment.”

The firm will make investments of between A$15 million to A$35 million, a space where there is little competition, Moynihan believes. 

Since the global financial crisis in 2008, domestic banks have come under increasing pressure to provision for their non-performing loans and to put them on their balance sheets as non-performing loans.

Chester Moynihan, managing director, Allegro Funds

Moreover, rival firm Anchorage Capital Partners in April closed a A$250 million turnaround fund just six months after launch, indicating a strong interest from both local and international LPs in Australia’s distressed market. Half of Anchorage’s fund commitments were from Australian LPs, while institutional investors from Asia, Europe and the US accounted for the other half, according to an earlier company statement. 

“There are various macro drivers in the Australian economy that are facing some headwinds [and] I think that is an important part of how LPs look at things – that there should be an underlying opportunity,” one industry source explained. 

“Anchorage just had a very successful fundraise with a few international LPs supporting them, [but] the fund sizes [of both] are pretty reasonable in light of the size of the economy in Australia and if you speak to the GPs about the size of the opportunities.” 

Allegro Funds was founded in 2004 and in 2008 Allegro was appointed replacement GP of the A$300m ABN Amro Capital Australia Fund II, whose LPs exercised a “no fault divorce” clause and replaced existing managers with Allegro. 

That fund has recorded a 25 percent IRR from when Allegro assumed control until June 2013, according to the firm. In addition, Allegro has completed five co-investments since 2010 with various superannuation funds and institutional investors.