Pioneering Nordic CLO Fund Reopens After Hitting 20% Returns

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The Nordic region’s first structured credit firm is planning to entice investors into diversifying their private equity holdings with an offer of high-yielding exposure to leveraged buyouts.

Ymer SC AB has reopened its Alternative Credit Fund through September after achieving close to 20% returns in its first year by investing in credit indexes and CLOs, which repackage leveraged loans into floating-rate securities.

Amid a global pickup in demand for CLO investments, the Swedish company’s second fund is now targeting a size of 250 million euros ($297 million), according to Ymer’s chief executive officer and co-founder, Stefan Engstrand.

“A lot of investors are looking at floating-rating products on the back of inflation and rising interest rates,” he said by phone.

Engstrand says many of the fund’s investors, who typically comprise institutions, family offices or high-net-worth individuals, come from a private equity background and are therefore familiar with the underlying risks.

The Nordic region “has a very strong private equity footprint, which means that the average investor has high allocations to PE but has little or no exposure to the loans financing the PE-owned companies,” he said.

The latest fund from Ymer, which essentially gives investors exposure to bundled loans from high-yield rated borrowers, offers private equity-like returns but with a shorter lock-in period of five years, according to the portfolio manager.

“Unlike private equity investments, we have no draw downs, instead we take down the full amount of the investment on day one,” Engstrand said.

Ymer, the name of a primeval giant in Norse mythology, is now busy selling out of “pre-Covid portfolios” and “selectively investing in new primary transactions,” he said.

The CLO market in Europe, where Ymer’s exposure is tilted toward, has expanded continuously since restarting in 2013 after the global financial crisis shuttered primary issuance. European outstandings totaled 150 billion euros at the end of March, according to data compiled by Bloomberg.

Engstrand says the outlook for corporate credit is “healthy.” But he also notes that the fund did well during the latest crisis.

“Volatility in the market isn’t necessarily bad for us on a long-term basis,” he said. “As an example the second fund was launched in January 2020 and has had a very strong first year.”

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