By Sharon Klyne and Umesh Desai
SYDNEY/HONG KONG, Nov 24 (Reuters) - Australian investment manager Tanarra Credit Partners has entered into the private debt market with an A$285 million ($217.17 million) fund that will lend to non-investment grade borrowers, filling a void left by retreating banks in the Asia-Pacific region.
Tanarra aims to step in for these lenders who have been hit by high capital costs for such riskier lending as well as give borrowers alternate funding sources.
"There is a growing opportunity for alternate sources of capital with the fact that banks are facing higher capital costs and regulatory constraints, particularly in sub-investment grade lending," said Michael Tierney, one of Tanarra's managing partners, in a telephone interview.
The initial funds will be used to provide senior secured loans to private equity sponsors or smaller companies in the Asia-Pacific. They include a significant cornerstone investment from Australian superannuation fund UniSuper.
Tanarra joins a growing pool of institutional investors to offer an alternative source of capital to borrowers. 9nRLP60118a
"Previously, banks dominated the space in the Asia-Pacific region. Basel-related changes means regional banks are pulling back in terms of lending in the hybrid loan space," said Peter Szekely, another managing partner in Hong Kong.
Australia's A$2 trillion-deep pension fund market is a ready pool of liquidity for borrowers to tap.
Already AustralianSuper, Australia's largest pension fund with over two million members, and its peers such as Construction and Building Unions Superannuation (Cbus), First State Super, REST Industry Super and Telstra Super are developing direct lending strategies.
Private equity funds have also been targeting investments in Asia as global investors allocate capital to catch growing market and economic momentum in countries including China and India, pushing up the average fund size.
Global and regional private equity firms have raised a total of $48.2 billion in Asia-focused funds this year, already surpassing 2016's full-year amount of $43 billion, according to data provider Preqin.
"There is a huge weight of money chasing yields. We are there to support those transactions," said Tierney.
The private credit market also gives investors a viable alternative to traditional fixed income products - typically government bonds, investment grade bonds and hybrids - at attractive returns.
The Tanarra fund is offering investors mid-to-high single-digit returns.
"This fund is allowing investors access to senior secured credit risk while providing attractive risk-adjusted returns," said Tierney.
($1 = 1.3123 Australian dollars)