Barak positioned for post-pandemic economic recovery
The way forward
Posted: 30 July 2021
• Barak winds down three funds in a controlled manner to optimise value for all investors
• Barak to create two New Funds to replicate track record of generating returns and impact in alternative lending as an asset class in Africa
• The Emerging Markets Term Fund and the Emerging Market High Yield Fund will continue to pursue impact-orientated, private credit lending opportunities as key emerging markets recover post-pandemic
• Barak Fund Management will commit capital into the New Fund alongside investors
• Continued confidence in the alternative asset class, Africa and emerging markets, with new investment professionals being hired
• Barak opening an office in the renowned Abu Dhabi Global Market
LONDON, 30 July 2021 - The Covid-19 pandemic has continued to impact economic activity globally, forcing industries to adapt to “a new normal.” This has been no different for the investment management industry, particularly those managing certain alternative asset classes. Barak Fund Management ("Barak") has been managing not only the impact of Covid on its existing investments, but also the overall structure of its future funds, management approach and related strategy.
As an Africa-focused investment manager, Barak has provided trade finance and alternative lending to companies that enables economic growth and job creation in the agriculture and food security sectors. Since its founding in 2008, Barak has established seven funds with a total AUM of $1.3 billion. Its flagship fund, the Barak Structured Trade Finance Fund is the largest of its kind in Africa, and has won numerous awards in the Hedge Fund Industry, providing consistent returns to investors, achieving cumulative returns of 129% over 11 years (up to 2020).
Background to the restructuring
To pro-actively manage the challenges posed by Covid-19 in the best interests of all shareholders ("investors"), the Board of the Fund and Barak placed redemptions on hold, suspending some funds in March 2020. In keeping with best practice, Barak also made appropriate provisions in the Fund financials. Barak was hopeful that markets would stabilise and that the suspensions would be lifted. Unfortunately, this did not transpire, as Covid’s second and third waves impacted economic recovery.
Barak has managed its investment portfolio throughout this process to maintain investor value and protect the asset base. The outcomes achieved for investors to 2 date are confirmed by the audited financial statements for the period ended 31 December 2020. The suspension has been lifted for three of the Barak funds.
Notwithstanding the approach adopted by Barak and some successes achieved to date, it is evident that the pandemic will continue to impact liquidity in the short to medium term (being at least 18 months). As a result, Barak has decided to wind down the remaining three funds in a controlled way to balance those investors requiring redemption with the need to maximise value for all investors.
The New Funds
Barak shares its peers’ confidence in alternative assets as a class, the sectors we invest in, and the impact our investment approaches generate. After consulting with several existing investors, Barak has decided to establish two New Funds. Existing investors whose mandates permit will continue to share in the growth of the private credit asset class in emerging markets via these funds. Barak's in-depth knowledge and understanding of these markets, and our team of highly motivated and skilled professionals, support our belief that the New Funds will replicate our historical success. These New Funds have been modernised to suit the current credit opportunities presenting themselves from our high-quality network and internal intellectual property.
The New Funds will continue to pursue impact orientated private credit lending opportunities. They will be established in the Cayman Islands and named the Emerging Markets Term Fund and the Emerging Market High Yield Fund.
Barak Fund Management has since inception ensured a complete alignment of interests with its investors by investing the vast majority of its performance fees across the funds we manage alongside investors and will continue to do so by committing capital into the New Funds.
The Manager and its staff remain firmly committed. We are excited about this new growth phase in the business, and we are now actively looking to attract top talent into the organisation as we expand.
Enabling growth in emerging markets is dependent on growth capital. During the initial stages of the post-pandemic recovery, it is anticipated that most banks will focus on restructuring their portfolios, rather than extending new lines of credit. Coupled with this, the strict Basil requirements limit lending by banks to these markets. Non-bank specialist financial lending institutions such as Barak are therefore well placed to step in, and selectively provide flexible, bespoke solutions to borrowers whilst providing investors with attractive, risk adjusted returns.
Our continued confidence in the asset class is underlined by the decision to open an office in the renowned Abu Dhabi Global Market (ADGM), where we are in the process of becoming licensed with the Financial Services Regulatory Authority. The ADGM based impact investing funds will have a similar investment strategy with an expanded geographic focus into the Middle East in addition to Africa. Barak has already received support from Middle-East based investors (some who have already completed recent due diligence on Barak) who will invest in these new impact- 3 orientated alternative lending funds once registered. In addition, we are in the final stages of creating a platform for a large Chinese state-owned enterprise to allow them to partake in trade in Africa and the Middle East.
Definitive offering and subscription documents for the New Funds are in the process of being prepared, and it is anticipated that these will be circulated to investors by 31 August 2021.