SSG raises $400m Asia distress fund

Asian Venture Capital Journal – 20 November 2012

International investors are currently gun-shy on India, with capital is leaving with alacrity, across all asset classes. For Asia-focused distressed investor SSG Capital Partner, India has become an attractive target market.

“We tend to be contrarian – when the economy is down and funding is tight in the market it translates to robust deal flows” says Edwin Wong, managing partner and chief investment officer at SSG. “The economic slowdown plus inherent issues in India mean there are more special situations opportunities.”

Wong adds that there is a lot less competition for deals in India compared to SSG’s other major target markets of China and Indonesia. There are few special situations professionals on the ground, although a growing number of traditional private equity players are shifting down the capital structure and pitching credit strategies.

The SSG team has been operating in the special situations space since 1997, having originally run Lehman Brothers’ Asia special situations group. The GP recently closed its second fund at the hard cap of $400 million, well above the $300 million originally targeted. Fundraising took about eight months. A first close of $85 million was reached in March 2012 as existing investors re-upped and then the team went out into the market with placement agent Mercury Capital Advisors.

“We didn’t know what to expect, we were prepared for a much tougher ride”, says Wong. “Most investors need to be educated about what special situations means in Asia.”

The process stands in stark contrast to SSG Partners I, which had no formal institutional rollout and came at a time – September 2009 – when many LPs were busy recalibrating their portfolios in the wake of the global financial crisis. The fund closed below target at slightly over $100 million in December the following year, although there was a considerable amount of co-investment by LPs so the GP ended up deploying about $300 million in equity.

This time around the LP base is more balanced, with a mixture of large family offices, state pension funds and insurance companies among others, from Europe and the US. They will still have opportunities for co-investment but not to the same magnitude as the previous vehicle.

SSG focuses on proprietary transactions determining complex capital solutions and driving the turnaround process. SSG typically attacks the balance sheet of the company with a view to control the capital structure and work with management to execute a restructuring.
They have also done deals involving shareholder disputes where a fundamentally strong underlying business is being held back by disagreements at ownership level. SSG would partner with one shareholder and take out the rest. It also takes positions on a secondary basis from other managers when assets aren’t performing as expected.

“It is more than just capital – it is ideas, solutions to restructuring”, says Wong. “There is a certain value-add that we bring to the table that resolves conflicts. We are a credit fund in nature and we look to take credit risk but with a pretty major equity upside along with it.”