The Arowana Australian Special Income Opportunities Fund (ASIOF) was created and aimed at providing funds for small and medium-sized enterprises in Australia.
In 2018, Arowana launched a private credit fund called the Australian Special Income Opportunities Fund (ASIOF) to provide an alternative source of debt funding to small and medium-sized enterprises (SMEs) in Australia. The genesis of this investment strategy was the experience of Arowana’s leadership team successfully originating and investing profitably in a private capacity into such opportunities. These opportunities had manifested largely because of increasing regulation of Australia’s oligopolistic mainstream banking ecosystem, which made it increasingly unprofitable for the banks to lend to SMEs. We also saw that this could provide a much-needed funding solution to SMEs that was consistent with our B Corp ethos of using “business as a force for good”.
For its limited partners, ASIOF was an income fund and delivered monthly cash flows during the life of the fund. Consistent with our agile approach to asset management vehicles, we decided to not scale up this fund as we saw that the market was getting quite competitive with an increasing number of alternative private credit providers. We were also concerned about the corrosive consequences of inflation, following the unprecedented level of COVID lockdown-related money printing. We surmised that there would be better opportunities to invest our capital elsewhere.
As a result, we then set about realising value for ASIOF’s investors ahead of schedule without compromising borrowers. At fund close in 2021, ASIOF distributed a lump-sum return that resulted in a gross IRR of 28.9%, materially in excess of the fund’s hurdle rate of 8% per annum. On a net basis, the fund delivered a 19.9% IRR and a multiple of invested capital of 1.5x. These strong returns were achieved notwithstanding the fund’s investments being fully collateralised, and despite significant disruption to our borrowers’ underlying business operations. Consistent with our B Corp ethos, the Arowana team adopted a collaborative approach to working with our borrowers in helping them navigate through some challenging circumstances rather than taking the easy option of foreclosing on and seizing control of collateral. Being experienced operators of businesses ourselves, we were able to workshop with our borrowers to develop appropriate solutions that enabled them to continue with their businesses.
|Net IRR (excl. performance fees)||22.9%|
|Net IRR (incl. performance fees)||19.9%|
* With the exception of MOIC