Tiger Alternative liquidates its structured fund with over 15% IRR

South Korea’s Tiger Alternative Investors Co. has liquidated its structured fund backed by shares of US-based business development companies (BDCs) with more than a 15% internal rate of return, according to investment banking industry sources. 

Set up in June 2020 with a five-year maturity, the fund was liquidated in one and half years thanks to the higher-than-targeted IRR, the asset manager said. 

Last year, Tiger Alternative received a combined $100 million commitment from Korean retirement funds and insurers to invest in senior debt of the US structured fund. It became the first Korean asset manager to invest in a US-based BDC-backed structured fund. Along with the interest income, the structured fund investors have collected principal repayment and capital gains in the share sale.

BDCs are created to invest in small and medium-sized enterprises and invest in various strategies, such as secured or unsecured loans, mezzanine debts and private equities, typically to pay high dividend yields. BDCs must invest at least 70% of their loan assets to private companies or listed companies that have a market cap below $2.5 trillion. BDCs are exempt from corporate income tax if over 90% of their distributable profits are allocated to shareholders.  

The structured fund has invested 120 billion won ($100.6 million) in senior debts of a special purpose company (SPC) founded by global asset management giant KKR & Co., while a US local asset manager invested in subordinated debts of the SPC. The SPC has invested in another SPC that has bought shares in FS KKR Capital Corp., an NYSE-listed BDC focusing on private middle-market US companies, to make investments in software, healthcare, capital goods and other sectors.

Tiger Alternative said the BDC’s share price, previously undervalued, has recovered its pre-pandemic level. “The BDC’s portfolio companies were mainly in the sectors defensive to the pandemic. That helped us create stable returns,” an official from Tiger Alternative said. 

Founded in 2018, Tiger Alternative manages 5.9 trillion won in assets. In June 2019, it provided $100 million in debt funding for KKR’s $1.32 billion acquisition of Kentucky-based BrightSpring Health Services. KKR closed the acquisition in March of the year and merged the health services provider with its portfolio company PharMerica Corp.

In October of the same year, the Korean asset manager pledged a €150 million ($169.2 million) senior loan to Advent International Corp. for the acquisition of a German chemical company Evonik Industries AG. 

In September 2021, Tiger Alternative and NH Investment & Securities bought multifamily homes in California for $220 million. The properties, located in the Inland Empire community of Corona, CA, include all the 442 homes and community facilities. The two Korean firms expect to earn between a 7.0% and 7.5% return from the investment. 

Write to A-Young Yoon at youngmoney@hankyung.com
Jihyun Kim edited this article.