Orion is a Portfolio Management Strategy (PMS) designed for investors seeking regular income and long term capital appreciation. It will invest across various types of high yield debt including real estate backed debt, structured mezzanine debt and securitized debt.
Why invest in high yield debt?
Mid-sized companies across sectors have several interesting and profitable opportunities for growth. However, sources of capital are limited
- Own equity of promoters is generally exhausted in early stage
- Bank funding, though available, covers only a part of the total need
- Conventional funding channels do not support special situations like financing a new project
- While capital markets issuances have increased, it is limited to large corporates and highly rated (AA- or better) issuers only (90% + of the market)
Hence, investment in privately originated and actively managed portfolio of diversified debt investments issued by businesses with good vintage and track record, thus represents an attractive investment opportunity
- Structured High Yield Debt Has Delivered Superior Risk-Adjusted Returns
- High yield debt works with strong collateral (real estate assets and/or pledge of controlling stake)
- It builds on the PE approach to investing with an alternate route to structuring the returns and exit
- Pre-investment due diligence and cash flow analysis is similar to PE
- Investment is structured to generate regular cash flows and pre-determined exit at a known IRR
Why Invest in Orion
Gives access to high yield debt
Currently with corporate FDs, few NBFC NCDs and debt mutual funds there are a few options available in the credit space. There have been hardly any products for the moderate risk-taking and discerning investors on the higher yield side. Orion helps you get access to such investment opportunities.
Creates a Diversified Portfolio
High yield debt carries credit risk of the borrower. To mitigate this risk, the PMS will target investing in a wide variety of securities like NCDs, CRPS across real estate, mezzanine debt and securitized debt and also amongst various borrowers within these domains at a ticket size of only Rs. 25 lakhs
Attractive compared to primary issuances
The portfolio will buy high yield debt securities at a significant discount vis-à-vis direct investors in primary issue of NCDs. Net of management fee and profit sharing fee, the yield from the NCDs for portfolio investors will be at par or better than that for direct investors
Attractive compared to Debt Mutual Funds
Debt mutual funds do not offer exposure to high yield debt. The farthest mutual fund portfolios have gone on this front is A-rated papers – with resulting returns of no more than 12%-13%. Also, debt mutual funds do not offer regular income (except for a small subset).
Investors can think of this as an allocation of their fixed income portfolio. It will provide better returns than existing options in the fixed income space like bank FD, corporate FD and bonds.
For affluent investors this is an attractive investment avenue because of volatility in equities and commodities market, comparatively low yields in rated bonds and bank deposits, and high real estate prices.
Useful for clients who have current exposure in high-yielding real-estate backed instruments as this product will diversify the overall high-yielding portfolio.