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February 06, 2019  

New Offering Targets Argentina's High Rates

DoubleBlue Capital is expanding its direct-lending business in Argentina.

The New York firm, led by emerging-market consumer-finance veteran Tomas Arlia, aims to raise $500 million for a drawdown vehicle called DoubleBlue Argentina Specialty Finance Strategy. A first equity close is penciled in for the second quarter.

DoubleBlue is marketing the vehicle as an opportunity for investors to gain exposure to some of the highest interest rates in the world, driven by an economic crisis in Argentina that saw the inflation rate hit an annualized 48% in November. A big chunk of the fund’s capital would finance low-balance loans to government employees and retirees at rates that currently range from 50% to 140%. Included in the mix would be so-called Codigo de Descuento loans, whose payments are debited directly from paychecks to government employees. Those accounts have experienced a default rate of only about 2%.

In addition, the fund would finance agribusinesses including seed and fertilizer suppliers by purchasing their receivables and writing loans with coupons of 8-12%. The default rate among those accounts is about 1%. DoubleBlue would use modest leverage to boost the returns of its agribusiness-loan portfolio.

Finally, the fund would finance purchases of used cars and trucks by lending money to dealerships. Auto loans to its targeted borrowers will be written at rates of 70-100%, with “low to moderate” default rates of 10-15%, according to marketing materials for the offering.

DoubleBlue, with $150 million under management, is the only hedge fund operator focused on consumer-finance opportunities in Argentina. An earlier offering, DoubleBlue Argentina Consumer Finance Fund 1, is on track to generate a 15% internal rate of return, largely by financing payroll loans to government employees. That vehicle launched in January 2018 with $100 million of commitments, but fielded offers for twice that amount.

Arlia, who previously held a senior role in GE Capital’s once-massive consumer-credit business, believes the new fund offers broad exposure to Argentina’s constrained credit market with minimal downside risk. While the nation’s economy is expected to improve this year, international banks remain on the sidelines, and Argentine banks are making credit available only to their best customers. DoubleBlue’s strategy is designed to generate a gross return of about 20%, including the cost of currency hedges.

Arlia and DoubleBlue’s marketing chief, Catherine Vaughn, discussed the planned fund with 20-plus investors at Context Summits’ “Miami 2019” conference last week in Miami Beach.

DoubleBlue Argentina Specialty Finance Strategy will charge a management fee of 0.75% on committed capital and 1.5% on invested capital. DoubleBlue would keep 20% of profits after limited partners receive an 8% preferred return.

Arlia founded DoubleBlue in 2015 as a fund-of-funds operation. The firm still runs a multi-manager vehicle dubbed DoubleBlue Partners Fund with about $50 million under management.

He previously was a vice president at GE Money, a consumer-finance behemoth that invested $200 billion in 55 countries at its peak. After that, he occupied a senior investment post at GE Asset Management, the company’s pension. In that role, he oversaw a $4.5 billion portfolio of hedge funds and private equity funds, while also managing direct debt and equity investments in Latin America.

DoubleBlue’s team also includes consumer-loan specialist Maximiliano Kozakiewicz, who has worked at ICBC Argentina and Bank of America; Fernando Aftalion, who previously headed agribusiness loans at Inter-American Investment Corp.; former GE Money executive Jim Richmond; and head of portfolio operations Maria Eugenia Landivar, who had been chief financial officer of GE Money in Argentina.

Vaughn, the firm’s head of marketing, joined in 2017 as a partner. She previously held top marketing and investor-relations roles at Landmark Global, Hudson Executive Capital, Hutchin Hill Capital and Highbridge Capital.

CORRECTION (2/20/19): This article has been revised. The original version gave an incorrect title for Tomas Arlia when he served a GE Money. He was a vice president.