Stratus ‘first private placement’ opens
FOLLOWING the establishment of Stratus Alternative Funds SCC in early July as an alternative investment vehicle with a regional focus, Caribbean Mezzanine Fund II (CMF II), which is a sleeve of Stratus, has sought its first private placement offer with a Us$40-million target with an option to upsize to US$60 million ($8.63 billion) by December 18.
Although the principals of NCB Capital Markets (NCBCM) haven’t indicated the timeline for the various funds, CMF II’S offer has opened with NCBCM and listed company Eppley Limited acting as co-managers for the fund. Both companies had setup CMF I in 2016, which was the Caribbean’s first dedicated mezzanine and credit-focused fund which currently has an asset base around US$16.8 million. Stratus, which is setup in Barbados as a segregated cell-fund, aims to grow their sleeves through CMF II, an infrastructure and opportunity fund.
The private placement is currently open to accredited investors at a minimum participation amount of $10 million (US $70,000) in the form of non-redeemable convertible preference shares at price of $10.46 (US $0.07). With a critical focus on generating higher returns, CMF II is expected to have an 85 per cent dividend policy which will be done in the form of quarterly USD dividends. CMF II aims to have a minimum return of 11 per cent across a diversified array of portfolio investments which haven’t needed to restructure or refinance since COVID-19 struck.
Eppley and NCBCM will a 2 per cent management fee on the net asset value of the fund and a 20 per cent performance fee subject to a 6 per cent return on average equity hurdle rate. Since CMF II will be anchored by CMF I after the transfer of assets, the total fund value of CMF II would be around US $76.8 million. CMF I had a 12.6 per cent average yield on investment and returned an annual 8 per cent dividend yield to investors, which was on the higher end of average returns of the Private Markets Benchmark. CMF II projects that a US $100,000 investment would yield about US $283,942 at the end of 10 years on an 11 per cent return compared to a USD global bond which may yield 4 per annum.
Despite there being no specific indication of whether or not the infrastructure fund will go to the public market in the form of an initial public offering (IPO) for greater capitalisation, details on the fund have indicated that it will seek a minimum 8 per return on investment. The private nature of the investments provides an illiquidity premium to investors with a potential listing giving greater gains to the original investors in the fund.