Bain Capital raises $2 billion in biggest Asia special situation pool

LP raised $2 billion for its second special situations fund, giving it the biggest pool of capital focusing on complex and structured credit and equity investments in Asia-Pacific.

The second pool of cash is double the size of its first fund and the amount raised exceeded the $1.5 billion target, the Boston-based asset manager said. It will also receive $650 million each from separately managed accounts and its India Resurgence Fund, and a one-third contribution from its $4 billion global fund, Barnaby Lyons, global co-head of special situations, said in an interview.

Bain has been accelerating its expansion in Asia since 2015, seeing “pockets of volatility” to invest in because of the relative immaturity of Asia’s capital markets, the heavy presence of banks in the region and the different stages of economic development, said Lyons.

“There’s structurally less competition here than any other market we operate in because Asia is difficult,” he said. “We’re looking for moments of complexity. When there is complexity, we see value.”

Global banks scaled back in their special situations investing after the 2008 financial crisis as the Volcker rule, part of the Dodd-Frank Act passed in 2010, restricted investing. The region’s current dominant players include SSG Capital, which is India and Southeast Asia-focused, and Hong Kong-based PAG, which raised $950 million in its third Asia loan fund in 2018. Goldman Sachs Group Inc. is stepping up through hybrid investing in Asia from its $14 billion strategic solution funds that focuses on credit and special situations globally, and KKR & Co. last month raised its first dedicated Asia credit fund at $1.1 billion.

“Of the global special situations peers, I think it’s true no one is investing in Asia as much as we do,” said Lyons. “Of the regional peers, there are only three of them at scale.”

The firm is investing more than $1 billion in Asia in special situations a year, similar to the pace of its private-equity team. It had it busiest year ever in 2021, completing 15 deals and bringing its total investment in the region to more than $6 billion in more than 65 deals, he said.

The special situation fund focuses providing debt and equity solutions to entrepreneurs, asset owners and investment funds with limited access to the traditional banks or those that are reluctant to dilute equity or lose control, while facing distress or need capital to build platforms.

Over two-thirds of its first fund is either senior debt or structured junior capital, which might involve equity investment with a credit protection. The remainder is straight equity with a focus on downside protection and the firm typically looks at hard assets with strong cash flows such as those in real estate and aviation sectors, long duration leases or distressed equity, Lyons said.

Among past notable deals was taking over the collapsed airline Virgin Australia Holdings Ltd in 2020. In China, the team is betting on infrastructure assets that supports the growth of technology and consumption trend, such as data center, logistics and life science parks, all are capital-intensive investments, leaving a capital gap that cannot be provided by traditional debt and equity providers, he said.

The firm refrained from offering structured credits in India half a decade ago because the country was flushed with liquidity from non-bank financial , As a shadow banking crisis followed by the pandemic has led to a credit crunch, the team is now more focused on this space, having recently completed three real estate structured credit investments after several distressed deals since 2018. As the country recovers from Covid, the The firm last month formed a $1 billion real estate venture with Lodha to develop for digital infrastructure space.

Real estate that supports the new digitized economy and financial services deals prompted by regulatory changes such as lending platforms are among the biggest sectors in the first fund. Despite the emergence of more stressed opportunities in China residential real estate, Lyons said he’s still “incredibly cautious”.

“We haven’t had any material exposure to residential real estate in China since we started our business here,” said Lyons. “This was deliberate because the system was based on leverage upon leverage and there was significant policy risk. We are not looking to pick the bottom perfectly and would rather wait for clear signs of recovery.”

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