• Investment house to launch fund in 2022 first half
• Aiming to ‘recapitalise’ COVID-devastated firms
• Predicts mergers and acquisition activity uptick
By NEIL HARTNELL
Tribune Business Editor
A Bahamian investment bank yesterday revealed it is launching a private equity fund that aims to raise up to $50m over the next three-five years for “investments in possibilities” post-COVID.
Michael Anderson, RF Bank & Trust’s president, told Tribune Business it was in the final stages of obtaining all approvals necessary for its RF Strat-Equity Fund to take-off in the 2022 first half with the goal of providing equity financing to established private companies needing to recapitalise.
The first investment fund of its kind to be targeted at the Bahamian market, he said it would target accredited investors - institutions and high net worths - for financing given that they were likely to be more comfortable with the higher reward/higher risk model offered by private equity funds.
While the RF Strat-Equity Fund will focus within The Bahamas, Mr Anderson said the investment house is also creating a separate international private equity fund - based on the Bahamian Depository Receipt (BDR) structure adopted for several existing investment funds - that will give local investors with US dollars access to global opportunities via its tie-up with Crystal Capital.
“I’m hopeful we can raise over the next three to five years somewhere in the region of $30m-$50m,” the RF Bank & Trust chief told this newspaper of the Strat-Equity Fund. “It’s very difficult to know what the demand will be and, if we can find opportunities, how much capital will be available to take advantage of them.
“It’s an investment in possibilities, and we hope people see the opportunities. We hope to do so many investments each year so that the fund will grow over time. We look at the market at the moment, and see there’s a significant amount of money flocking into our existing funds from investors looking for opportunities.
“We’re hopeful people will see this opportunity, and move money out of the banks and into innovative opportunities where they can really help the economy.”
David Slatter, RF Bank & Trust’s vice-president of investments, had earlier confirmed the creation of the domestic and international private equity funds during a webinar organised by the investment bank.
Referring specifically to the international version, he said: “We’re going to be launching a private equity fund using Crystal Capital’s network of private equity managers... This is a new asset class for investors, and we’re excited to add this in the first half of the year.
“We have to draft the [offering] memorandum, get Securities Commission approval and be listed on BISX. There are a number of hurdles to get over. The target is to have this in place in the first half, so that by the second quarter it will be available to individuals and institutions.”
As for the Bahamian-focused RF Strat-Equity Fund, Mr Anderson told Tribune Business it was “just about to get it licensed” and obtain the necessary approvals from the Securities Commission.
“Once it is registered we will start to speak to potential equity opportunities, and we have one or two identified at the moment,” he said, declining to name them. “The plan for the private equity fund is to invest in private companies that are not listed on BISX.
“The idea is to either turnaround or expand these companies to the point where we could potentially exit and sell them off as listed companies. The problem is to find companies that need equity to rebuild their business or help them acquire other companies or facilitate other opportunities.”
Organised, structured private equity funds have never before been seen in the Bahamian economy. Typically drawing on monies from high net worth individuals and institutions, such as pension funds and insurers, they make targeted investments in companies with the objective of generating significant returns by turning them around, expanding them and ultimately selling-out for a profit.
Suggesting that COVID-19 “disruption” had left multiple privately-owned Bahamian companies capital-starved and in need of financial help, Mr Anderson said: “Coming out of this last two-year crisis, and to some extent the Abaco situation with Hurricane Dorian the year before, there are a lot of businesses in The Bahamas that are struggling.
“Even if they did not have a lot of debt on the balance sheet going into this, a lot of revenues have been lost, their doors are closed and they are waiting to re-establish their business. They have been disrupted, and may have to look at mergers with companies in similar industries, buying out weaker competitors not able to get going.
“There are opportunities that will come from this. I expect merger and acquisition activity in the country to pick up over the next two years as people work out how to move forward.”
Explaining that the RF Strat-Equity Fund will invest in private companies, as opposed to BISX-listed ones, Mr Anderson said it would also focus on “established companies” with revenues of $3m to $5m per year and upwards rather than start-ups and entrepreneurs.
“It’s for companies that are struggling, need capital to grow, have a management team and track record so that the risk associated with it is lower than a start-up,” he added. “It’s this opportunity where we see we can assist companies in securing equity capital to grow their business.
“For companies in this economy to grow, most need more equity. Most people have chosen to fund their business through bank debt and take too much on the balance sheet. They really should not have funded through debt, but on good times it’s a solution and in bad times it creates a massive problem.”
Mr Anderson said the RF Strat-Equity Fund will have to overcome some cultural obstacles, such as the risk averse, conservative nature of Bahamian investors that typically results in most capital heading into fixed-income products as opposed to equity investments.
And many of the companies that it will target will also be unlikely, in the initial stages at least, to pay a dividend in a market where investor sentiment is driven by immediate returns on their capital.
The RF Bank & Trust chief, though, argued that the private equity fund will provide investors with diversification between different companies and better liquidity in terms of being able to exit their investment when they wish.
However, on the other side, existing business owners and shareholders are likely to be reluctant to welcome in additional investment. “In this economy the majority of wealthy people own their own businesses,” Mr Anderson told Tribune Business.
“They are the only participants in their business, own the shares and make the money. A lot of people invest in their own business and make money themselves, so they don’t share the equity returns.”