Through our Asian Fixed Income manager, our clients own a portfolio of Renminbi (RMB) denominated high yield bonds which offer an attractive current yield as well as the benefit of long-term appreciation of the Chinese currency. Our partner is a pioneer in Asian debt markets with an 18 year track record with Credit research teams in both Beijing and Hong Kong leading to high quality Credit underwriting. The portfolio consists predominantly of Dim Sum bonds, which are RMB denominated bonds issued offshore in Hong Kong by both Chinese and foreign companies. Around 75% of the issuers in the portfolio are located in Greater China and the remaining 25% in other Asian countries. Examples of borrowers include a subsidiary of a renowned Chinese property development and construction company Shui On Group, as well as multinational companies such as Unilever and Volkswagen. The portfolio currently yields 8-9% with an average duration of 3 years and carries a BB credit rating on average.
Through our US healthcare focused asset manager, our clients have become lenders to a small cap publicly listed provider of image analysis and workflow solutions that enable healthcare professionals to identify pathologies and diagnose cancer earlier than using incumbent tools. The company provides a range of computer-aided detection systems and a non-radioactive radiation treatment. The investment was structured as a 5 year senior loan with an attractive coupon collateralised by a five year tiered royalty on revenues with potential upside through equity warrants. Our partner is a healthcare specialist operating both public and Private Equity funds. Within their private funds, they typically finance small cap biotechnology and pharmaceutical companies which have challenges accessing the public debt or equity markets. This allows our partner to provide financing at attractive terms; typically in the form of a senior loan collateralised by company assets (either royalties or hard assets) with warrants attached.
Through a co-investment with one of our Private Equity Real Estate partners, our clients acquired an interest in a Freddie Mac securitization of over 70 newly-originated first lien mortgages secured by institutional quality multi-family properties across the United States. Even after stressing for extreme default scenarios, our underwriting suggested that our clients would earn double-digit net returns while still benefiting from substantial equity subordination. For our non-US clients, this offered exposure to the recovery of the US Real Estate sector without incurring FIRPTA taxes. Our partner is one of the leading Real Estate firms in the United States and a significant owner and operator of multi-family properties. Through our partner’s relationship with Freddie Mac, they were able to source the transaction and negotiate a pool of collateral which minimised the risk of potential losses. To date, the investment is performing ahead of expectations as the result of a refinancing which has already returned the original capital invested to our clients.
Through one of our active US Equity managers, our clients own the listed equity of a highly profitable independent broker dealer. The company provides an integrated platform of back-office, custodian and clearing services to independent financial advisors (IFAs). The company benefits from a lower cost structure than its competitors predominately due to its superior technology allowing it to profitably serve smaller advisors. The firm is expected to continue to benefit from the industry trend towards IFAs and away from financial advice tied to banks and insurance companies. Our partner is a long only US Equities manager who has a concentrated portfolio of companies with compelling valuations, stable cash flows and a strong competitive advantage in their industry. They will take board positions in their portfolio companies but engage constructively with management.
Through our Pan-European lower middle market buyout partner, our clients owned a leading designer and manufacturer of point-of-purchase displays for cosmetic brands. Our clients originally owned the senior debt of the company which was converted to equity through a financial restructuring led by our partner. During the 6 year ownership, the company tripled its EBITDA through an add-on acquisition which provided access to new customers and business lines and through organic international expansion. Our partner also drove significant cost reductions through improved manufacturing efficiency, lean production techniques and the re-location of manufacturing plants to lower cost geographies. Our partner is a lower middle market Private Equity firm founded over 20 years ago with funds focused on controlled buyouts in both the US and Europe. They focus on complex transactions including corporate carve outs, heavy operational turnaround situations and undermanaged assets. In addition to generating returns through EBITDA growth, they also aim to capture a pricing arbitrage by exiting as larger and better run businesses which tend to trade for larger multiples.
Through our insurance-linked securities partner, our clients have written bespoke, privately negotiated retrocession insurance contracts which insure the losses of reinsurance companies in the event of a catastrophic natural disaster. Reinsurance companies are structurally forced buyers of retrocession insurance as this is required to maintain their credit ratings which, in turn, enable them to write insurance policies. Our clients took advantage of distress in the reinsurance market in 2011 when policy rates spiked after the earthquakes in Japan and New Zealand. Our partner has over 25 years experience in the reinsurance market working as both insurance brokers and asset managers. Over this time, they have developed an innovative single product that is specific to each of their reinsurer clients which ensures simultaneous protection against multiple natural disasters. This is significantly more attractive to their reinsurance clients than the incumbent process of negotiating contracts for each natural disaster with separate providers.
Through our Asian based Private Equity Real Estate partner, our clients have acquired a 244 unit building on Conduit Road in Mid-levels, a premium luxury residential location in Hong Kong. Our partner focuses on the re-development of non-prime residential and commercial Real Estate into high end luxury properties. Their emphasis is on major re-development projects where there is significant opportunity for adding square footage, usually through changes in planned use and approvals for significantly adding stories. The initial purchase price, including development costs, can represent a significant discount to the valuations of buildings which are comparable to the newly completed structure. Our partner employs this strategy throughout Asia although with a particular focus on Hong Kong and Taipei. In this particular case, the original building purchased is being completely rebuilt to the specifications of a world-renowned architect. After redevelopment, the gross floor area of the building will be expanded by 25% which, in conjunction with the site’s prime location and high profile designer, should underpin a highly successful exit for our clients.
Through our oil and gas focused Private Equity partner, our clients own a midstream oil and gas company created to acquire strategic storage terminals for hydrocarbons in the Southeast United States. Across the company’s five sites, it owns over 60 storage tanks with 1.5 million barrels of active capacity. The company was created by our partner to take advantage of two key trends: 1) major oil companies continuing to divest non-core assets; and 2) increasing distance between oil production and ultimate consumption of refined products resulting in increased demand for storage. The company is undertaking several growth initiatives including add-on acquisitions and building new storage capacity at existing sites. Our partner is a middle market Private Equity firm focused exclusively on the oil and gas sector. They invest throughout the value chain including upstream exploration and production companies, midstream and logistics assets and oilfield services companies.