Highland Capital Management raised a $690 million public fund, Highland Credit Strategies Fund. It is the first time Highland is the manager and not a sub-advisor. Morgan Stanley is the underwriter. The fund debuted at $20.10 and closed at $20.70 last Thursday.
The firm typically raises money through collateralized loan obligations and separate accounts. The closed-end fund is permanent capital, which is more attractive to an asset manager. The fund will invest primarily in stressed and distressed assets, along with equities, but also in loans, bonds and asset-backed securities. It will be leveraged between 20-50%. The portfolio will be managed by Patrick Daugherty, James Dondero, Mark Okada and Kurtis Plummer. An official at Highland declined comment.
"This is an asset class that has a lot of interest in it right now because people are concerned about a further rise in rates," said Don Cassidy, senior research analyst at Lipper. He explained that it is a bit unusual that the fund is trading at such a premium, because most closed-end funds stay at their original price. "In an environment where people are currently tuned into [the] interest rate climate; this is good timing for them." He does not anticipate the premium will last. The average publicly traded loan participation fund, as of Friday June 30, was trading at a discount of 4.6%.
According to Dealogic, there have been 10 closed-end funds that have done an IPO in the first half of the year, with an average size of $305 million. According to Lipper, loan participation funds' averaged a .25% gain in May, its most recent data. The top individual performers were Prospect Street High Income, which gained 2.31% and Pioneer Muni High Income Advantage, which gained 1.21%. Only 10 other individual debt closed-end funds gained 1% or more.
Highland has tapped the public market before. Its Pioneer Floating Rate Trust has been up, closing at $18.93 last Thursday. It had been trading as low as $16.10, Dec. 22.
The Dallas-based firm, which manages about $24.5 billion in assets as of March 31, has almost tripled its assets in the past three years. In July 2003, it had $9 billion in assets under management (LMW, 7/20/03).