EG Capital Advisors has been managing client investments through affiliates since 2009 and its Emerging Markets Corporate High Yield strategy can be traced back to 2004 yet the establishment of a London base and a promising biotech fund has EGCA looking to new clients.
2017 was a year of laying the foundations with the establishment of EG Capital Advisors UK in its smart Saville Row office and the launch of a Life Sciences fund which aims to tap increasing interest in Advanced Therapies firms.
The company launched in 2013 as a Caymen-domiciled asset manager with its main office in Moscow but the focus shifted last year, according to EGCA managing director and joint chief executive officer Alexander Mints.
“In 2017 we opened our London office and now have our front office, investor relations and sales force based here. Our main rep office in Moscow still supports our legal team and hosts our back and middle office.”
EGCA has 34 staff, most of whom have worked at banks or asset managers. Alexander Mints was previously a managing director at private equity house O1 Group, a portfolio manager at asset manager Alfa Capital and an economist at Russia’s SDM Bank.
Igor Mints, EGCA’s other co-founder who runs the Life Sciences fund and its fledgling private equity business, was previously a managing director of international investments at ICT, a Russian investment company, and a managing director of Corporate Finance and M&A at O1 Group.
Alexander Mints said the firm is keen to start working with new types of clients and feels the establishment of the London office will help with that move.
He said: “We are keen to attract a broader set of investors to the fund and have been working with brokers and third party marketeers to this end. Until now, we have largely worked with high-net worth, ultra high-net worth and family offices but we want to generate economies of scale. Some ten years ago, I’d have said you’d be fine with $100m but now you need more like $300m to be secure and to deliver returns to shareholders.”
Alexander Mints added: “More money under management will also open the door to new ideas and a pipeline of new products.”
EGCA has three lines: emerging market corporate debt; a smaller private equity arm; and its public equity fund focused on biotech firms.
The firm’s most recent innovation was the Caymen-based EG Life-Sciences Fund 1 which launched in May 2017 in partnership with 4BIO Capital Partners, a London based investment firm specialising in life sciences.
The fund invests in listed biotech companies developing gene and cell therapy technologies which are at the clinical testing stage.
EGCA believes that by carefully selecting companies developing innovative treatments with significant commercial potential, the fund can deliver venture capital-style returns with public market liquidity.
Igor Mints said: “The EG Life Sciences Fund invests in a very specific segment, namely advanced therapies firms listed on Nasdaq.”
And the sector is growing fast, Igor Mints added: “When we launched the fund in May 2017, there were about 150 of these companies whereas now there are almost 200. I think this is one of the most under-appreciated segments in the entire market.”
Kirill Kul, chief investment officer, Private and Public Equity at EG Capital Advisors, also works on the fund. Before EGCA, Kul was previously responsible for public and private company research and due diligence at O1 Group, and held various roles at Otkritie, the Russian investment firm.
He said: “The EG Life Sciences Fund invests only in publicly-traded securities which makes them easy to enter and exit as they benefit from public market liquidity. These firms are specifically designed to cure diseases, rather than slow them down for example and the value created by them tends to be linked to clinical milestones rather than broader market movements.”
Dimitri Griko, the chief investment officer of Fixed Income at EG Capital Advisors, said the emerging market corporate high yield debt market is also expanding, which bodes well for EGCA’s debt fund.
He said: “The (emerging market corporate high yield debt) asset class as a whole looks very attractive. Some ten years ago there were about $200bn of external emerging markets high yield bonds outstanding whereas now the size is coming closer to $1tn and there are thousands of issues out there.”
Griko continued: “Emerging Markets corporate high yield credit has relatively low correlation to other risky asset classes. Correlation to global equities for example is 45% whereas US High Yield bond’s correlation is about 60-70%.”
Griko has 16 years’ asset management experience, having worked at Everest Asset Management, Sanno Point Capital Management and Deutsche Bank, where he was a senior trader on the New York convertibles desk.
He continued: “The asset class is very attractive from a risk-return perspective. Defaults are almost two times lower than in US corporate high Yield debt. So effectively, given that emerging market yields are higher, we are getting paid more for taking on less risk.”
The fund does not have sector or country biases, said Griko, “rather we look at fundamentals of each individual issuer and base our allocations on the number of attractive issuers within each country or industry”.
Based on fundamentals however, the fund has a relatively low exposure to financials.
Griko said: “The asset class structure is such, that about 30% of it are financials which have low transparency on what risks they carry on their books, low recovery values in case of defaults and are often the hardest hit in the event of economic downturn. We therefore tend to be aggressively underweight financials.”
EGCA said the fund considers many factors before it will think about allocating capital to a debt instrument and currently only has investments in fewer than 80 names, with six analysts tracking about 150 issuers “very closely”.
“There are many attributes that we consider when looking at a new name, including understanding our downside and what the recovery values would be and whether that recovery can be actually realised,” Griko said. “We conduct detailed research which includes understanding the business risks, management and the shareholders, capital structure, financial risks, covenants and much more.”
Alexander Mints is keen to grow EGCA’s two flagship funds, partly to enable further innovation.
“Looking ahead, we are looking at a number of fixed income opportunities linked to emerging market debt and we are not going to stray far from that.”
The EGCA joint chief added: “We are looking at a special situations in emerging market debt and a low volatility product that has the same base structure with a hedging strategy to control volatility.”