Your first fund is almost fully invested. Did your strategy play out as planned?
Basically all of Fund I's assets are either already sold or contracted for sale. We told investors in Fund I that we would aim for a net return somewhere between 20 and 25 percent per annum, and I think it's safe to say that we've very significantly exceeded that goal.
Were your limited partners able to understand your strategy better this time around?
Investors who were in Fund I had first-hand experience of the strategy and saw it work. All our major investors from Fund I returned for Fund II. New investors were probably between 40 and 50 percent of Fund II. They were similar types of investors, just more of them – although we found more interest this time from the endowment community than we did in our first fund. I think the thing that new investors grappled with was not just the strategy, but whether or not we could deploy that volume of cash quickly and in line with our strategy if we went up to the higher numbers that we were targeting and with asset prices having appreciated.
How were you able to reassure them?
Our strategy is not driven by distress and our contention is that if you focus on the asset and its intrinsic value you can make money in all the market cycles which aviation has experienced and will continue to experience. In the last eight to ten weeks, people saw that the disruption in the credit markets was positive for our strategy, in terms of the volume of deals that we might be able to secure. So now we're seeing firms who have portfolios already, need to create liquidity and are seeing less liquidity available in the capital markets because of the credit crunch, and they're looking for people like us to bring them that liquidity. Also, our investors could see that those players in the market that relied on high and structured leverage probably were not going to be the competition for us going forward that they used to be.
How does January's sale of 38 planes to Fortress-backed Aircastle square with your long-term focus?
The Aircastle deal was an example of a firm needing to grow. They had just done an IPO and they made a statement that their IPO was growth-based. In that scenario, 38 airplanes on a one-stop shop basis held a level of attraction that allowed them to value the purchase very differently than we would value it. For us, it extracted a value from the assets which we could show to our investors as a favourable return compared to a longer-term hold. Each of our assets is analyzed based on the scenario of holding over the term of the fund – 10 to 12 years – but we will be opportunistic.
What sort of opportunities are you pursuing through Fund II?
We already have 27 airplanes which are either owned or contracted through Fund II. We're sitting on some very valuable real estate within Fund II, with assets that are greatly in demand and that we can deliver two or three years earlier than anybody else can. We've already invested about $175 million, and, if you include capital committed, the number is $400 million. We anticipate that with leverage we will be buying somewhere between $3 billion and $3.5 billion worth of assets. That will be between 100 and 125 airplanes.