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April 29, 2020  

Medalist Chases Underpriced Securitizations

Medalist Partners is starting a new structured-product fund, even as it blocks redemptions from its main vehicle.

The New York firm plans to launch its Medalist Partners ABS Special Opportunities Fund by the end of June, raising only a small pool of capital without conducting a broad marketing campaign. The vehicle would aim to exploit pricing dislocations that have occurred amid the coronavirus crisis by buying senior securities underpinned by assets including residential mortgages, commercial mortgages, corporate loans, aircraft receivables and consumer cashflows.

“Increased market volatility, price declines and forced selling due to market disruptions and increased discount rates caused by the Covid-19 pandemic are resulting in billions of assets trading below the present value of their expected future cashflows,” Medalist wrote in a pitchbook distributed this month.

The offering comes at a time when numerous structured-product managers are raising money for similar plays. A source said Medalist brought in $50 million of fresh capital in April for its main vehicle, Medalist Partners Harvest Fund.

The new fund would employ a drawdown format with a term of at least five years, including a three-year investment period. It would charge a management fee equal to 1.5% of drawn capital. It also would charge a 20% performance fee, subject to a 7% preferred return after which Medalist initially would pocket a disproportionately large portion of gains until it catches up with the standard profit split.

Medalist decided to set up the fund after receiving inquiries from investors who were interested in opportunistic plays. But some raised their eyebrows over the timing and optics of the effort, pointing to the firm’s March 30 move to block redemptions from its Harvest fund amid margin calls that contributed to a monthly loss of more than 50% for that vehicle.

The slide turned what had been an annualized gain of 8% since the fund’s 2012 inception into an annualized loss of 2.3%. It also changed what had been a year-to-date gain of 2.7% at the beginning of March into a 55.6% loss, while reducing the entity’s assets to $350 million.

The open-end fund had been running $700 million in 2019. “Just blew up a fund and now they are out raising a new one,” one marketing veteran said.

The $2.3 billion Medalist is led by chief executive Greg Richter. The firm split off from Candlewood Investment in 2018, following that firm’s spinoff from Credit Suisse in 2010.