DealStreetAsia: HK-based PACM eyes up to $3OOm special situations fund for developed markets

PACM, which started operations in 2018, has already secured $150 million in capital commitments for the new fund, Francis Ng, Managing Director and Chief Investment Officer, told DealStreetAsia in an interview. The fund is on track to reaching the first close at $200 million by the end of H1 2023, he said.

Investors in the first close will be largely from PACM’s network of existing limited partners (LPs), which currently include family offices and family-led corporates in Hong Kong and Macau.

Once the first close is completed, PACM will be exploring potential commitments from new LPs, including insurance companies and public pension funds in markets like Japan, South Korea, and Taiwan. It expects to hold the final close of the fund in the second half of this year.

The new fund is built on PACM’s track record of managing and deploying north of $500 million since its inception, including its $100-million maiden special situations fund and earlier deals on its balance sheet.

Growing interest in special situation investing

PACM’s fundraising efforts come amid rising traction around special situation investments. The aftermath of the COVID-19 pandemic, coupled with global interest rate hikes and the ongoing Ukraine crisis, is pushing more investors to eye asset classes with enhanced liquidity and better visibility to capital draws.

An array of famed alternative asset managers are preparing themselves for this new growth spurt in special situation investments. Boston-based Bain Capital announced in June 2022 that it garnered $2 billion for its second Asia-focused special situations fund, which is double the size of its first fund and exceeded the initial target of $1.5 billion.

A month earlier, private equity (PE) major KKR & Co showcased the firm’s $1.1-billion inaugural pan-Asian credit fund, KKR Asia Credit Opportunities Fund.

The region’s dominant players, including Hong Kong-based PAG and Ares SSG, which targets Southeast Asia, China, and India, are seen stocking up dry powder for deployment to special situations.

PAG closed its fifth pan-Asian direct lending fund, PAG Loan Fund V, at $2.6 billion in December. Ares SSG 1sin the market raising its sixth Asian special sits fund. Its filing with the US Securities and Exchange Commission (SEC) in December shows that the total capital commitments from US investors to Ares SSG Capital Partners VI have amounted to $1.125 billion.

Ng is of the view that it is now “a good entry point” for debt investors to pick up special situations deployment to cash in on the asset class’s upside potential later this year as the global market is finally bottoming out.

PACM, which positions itself as a niche player specialising in mid-market deals in the range of $30-40 million, is actively seeking opportunities in acquiring non-performing loans (NPLs) of mostly mature assets from banks across developed markets. This will remain one of the firm’s key strategies in the following few years.

“There are a lot more projects and deals on the street. I think the opportunity set has doubled compared to three to four years ago,” said Ng, referring to the number of deal proposals that have come across his desk recently for initial screening, “But I think, instead of selling the asset, more people will try to restructure because they do see optimism in the market and valuation recovery.”

“If we start [deploying capital from the new fund] this year, the vintage could be the best across the board in the recent decade,” he said.

Firm focus on developed markets

Through the fund, PACM plans to retain its focus on developed markets, especially on common law jurisdictions including Hong Kong, Singapore, Australia, the US, Canada, and the UK, where the shared legal tradition enables a more efficient process in underwriting deals.

“Asia Pacific will continue to be the driving engine for global recovery,” said Ng, as he targets to deploy over half of the second special situations fund, if not more, to Hong Kong, Singapore, and Australia.

Ng is particularly optimistic about real estate in Hong Kong, as he sees the city – still the world’s most expensive property market – offer ample opportunities for investors like him to create exits.

In his estimation, it is practical to divest an asset in Hong Kong on a foreclosure and enforcement basis in approximately three to six months, versus another extreme, such as Canada, where the process could consume 18 months to as much as two years.

“We rarely find a place with the market depth of real estate as much as Hong Kong. Even Singapore does not come close,” said Ng, adding that more opportunities could emerge from residential real estate.

Alongside the fundraising, PACM is looking to set up two new offices, in Singapore and Canada, around the end of this year to add to its Hong Kong office. The planned Singapore office will primarily take care of the firm’s future capital raising in the city-state, while the Canada office, likely in Vancouver, will be used for both fundraising and deployment in the country.

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HK-based PACM eyes up to $300m special situations fund for developed markets (dealstreetasia.com)