Gen2 Partners re-orients to target PRC mezzanine

The Hong Kong-based firm has rebranded itself as Adamas Asset Management in order to focus strictly on mezzanine lending in China.

Gen2 Partners has rebranded its private equity and fund of funds branches as Adamas Asset Management to refocus its investment strategy in Asia from structured equity to shorter-term mezzanine lending, according to Paul Heffner, managing director and chief executive of Adamas.

The firm's hedge fund branch will spin out under the name Gen2 KS.

Adamas will focus strictly on China. Heffner believes mezzanine lending to China’s small- and medium-sized enterprises is a big opportunity because they are unable get capital from China’s banks. The firm estimates that around 96 percent of China’s 50 million SMEs cannot get bank financing, and that the unmet financial need of these companies totals around $1 trillion.

Adamas’ strategy is a mix of mezzanine lending and growth capital, Heffner said. The firm hopes to target companies that are not yet developed enough to qualify for direct private equity investment, but that can eventually qualify with just some extra capital to grow. 

The mezzanine model may limit Adamas’ returns, but it also mitigates risk, Heffner said. The firm will not rely on an IPO or trade sale for an exit. They will have “control through debt”: if the company defaults on the loan, Adamas will then own the company.

“This structure allows us to be much more involved with the companies,” Heffner added.

Hong Kong-based Gen2 Partners closed its first fund in 2010 on $100 million. 

A second fund, the Greater China Credit Fund, was launched in September and held a first close on $50 million late in the year, according to Private Equity International’s Research & Analytics division. The target amount is $200 million and the firm expects to hold a final close in December.