BK Opportunities Fund 6 - Crystal Fund

BK Opportunities
Fund 6

Quarterly Report | 30th June 2022

BK Opportunities Fund-6 will make its quarterly distribution to its investors for the 30th June 2022 quarter-end of 1.00% (cash-on-cash, non-annualized) of its Contribution Amount (in USD). Payments will be wired on the 3rd of August 2022.

Furthermore, the N.A.V. of BK Opportunities Fund-6 as of 30th June 2021 after distribution is 83.16%.

BK Opportunities Fund-6 net performances as of 30th June 2022 are:
June 2022 Monthly Return (non-annualized): -4.7%
June 2022 Year-to-Date Return (non-annualized): -6.1%
June 2022 Annual Return since inception: +1.1%
Cumulative Distributions inception/May 20192: 19.0%
Cumulative Return since inception/May 2019 (Distributions + NAV gain)1: +2.6%

(1) Based on the weighted average return of all classes since their respective closing date.

Market Commentary & Portfolio Overview

Political events seem to take more importance, as illustrated by the war in Ukraine. This is in this uncertain environment that businesses are navigating, but we expect to be able to steer through those unsettled times toward new opportunities.

The Economy: Fasten your seat belt!

The Federal Open Market Committee (FOMC) unanimously decided to raise the target range for the federal funds rate to 1.50 to 1.75 in June and now to 2.25% to 2.50% in July. With an annual inflation rate of 9.1% in June, at the highest in forty years, further rate hikes look inevitable. The usual argument is to raise interest rates fast enough to tame inflation but not too fast to kill a recovery, a real balancing act. Another important data is the future price of oil, further supply disruption due to the Ukraine war could push prices to $135 per barrel, as Goldman forecasts. At the same time, a depressed economy would bring back prices to $45, as Citi forecasts. In this case, oil prices would directly result from the state of the world economy (and not the opposite).

Corporate Markets: Creative Destruction

While the economy is slowing down, the US has now entered a recession as semantically defined by (most as) 2 consecutive quarters of negative GDP growth – Q1 2022 was -1.6% and Q2 2022 was -0.9%. As a direct result of supply disruption and interest rate increase, the corporate environment is getting less favourable. After a long period of cheap money and good trading conditions, Corporates’ margins will now be hurt. So we are expecting an increase in defaults following the current market repricing. It will create some short-end pain but also cleanse the economy of underperforming companies allowing for better performance in the medium range. One of the very few positives of the Covid pandemic has been to force corporations across the board to strengthen their balance sheet to cope with the pandemic. Corporations still enjoy a low-interest rate agreed upon two years ago that should last, on average, another 2 to 3 years. As of today, balance sheets are still healthy and able to cope with worse market conditions.

Corporate Loans: Opportunities

As a result of the complex environment, corporate debt issuance is 34% lower than last year. In June, the S&P/LSTA default rate was 0.43% by issuer number and only 0.28% by principal amount. S&P research published that the S&P/LSTA Leveraged Loan Index Default Rate Could Rise to 1.75% By March 2023. Overall the corporate loan situation will worsen, but it should stay manageable and allow us to use our skills to pick up valuable CLO tranche at lower prices, with a very strong resilience level.

BK Opp. Fund 6: Performances

Challenged in the short term,

but strong anticipations

BK Opportunities Fund-6 is making a distribution of 1.00% this quarter (payments will be wired on 3rd August 2022), bringing the total distribution since inception to 19.00% non-annualized. Although the asset’s payment has been strong this quarter (over 6.4% received), we have voluntarily reduced the fund’s quarterly distribution and increased our allocation for reinvestment, as we believe current prices are an opportunity to boost the fund’s performance. The annual return since inception is +1.1%, well below our expectation but our portfolio is well positioned to resist downside while performing in most anticipated scenarios (even with an increase of defaults). With the current market environment, and despite the robustness of our portfolio, our positions are priced relatively conservatively. As we collect coupons & principal (and distribute or reinvest them) and trade around our positions, the fund’s performance should increase and reach level closer to our target.

Quarterly Summary

BK-6-Dist-Jun30
(1) Cash on cash, based on the Contribution Amount.
(2) Since the inception of BK Opportunities Fund-6, May 2019.
(3) Net Asset Value after distributions as of 30th June 2021, as a percentage of Contribution Amount.
(4) Sum of the cumulative distributions since inception and the 30th June 2021 NAV.

Fund and Market Performances as of 30th June 2022

BK-5-MktPref-Jun30
(7) Based on the total return level of the JPMorgan CLO Index “CLOIE” for post-crisis CLO tranches rated BB (respectively B).
(8) Index designed to represent the overall hedge fund universe.
(9) S&P LSTA US Leverage Loan Index Total Return, sums principal, interest and reinvestment returns

Monthly Performances

BK-6-MthPref-Jun30

Cumulative and Quarterly Distribution

BK-6-DistCum-Jun30

Fund’s Summary

Currency USD
Fund’s Inception May 2019
Last Closing February 2020
End of Reinvestment Period February 2023
Maturity5 February 2025
Distribution Quarterly6
Investment Manager Oristan Ireland DAC
Administrator Apex Funds Services
Custodian CIBC Bank & Trust
Banker Northern Trust
Counsel Dillon Eustace
Auditor Deloitte
Bloomberg Page BKOPP6A KY
(5) Excluding the possible 2‐year extension
(6) First quarterly distribution made on 30th September 2020

Portfolio Manager
Olivier Gozlan


olivier.gozlan@crystalfund.com

+44 208 089 11 35
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This is not for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to law or regulation. The information contained herein is for information only and does not constitute an offer regarding any product. The document has been prepared by Oristan Ireland DAC and the data have not been audited nor verified. Past performance cannot indicate future performance. There is no assurance that the investment objective will be achieved and investment results may vary.