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BK Opportunities
Fund 6
Quarterly Report | 30th September 2022
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BK Opportunities Fund-6 will make its quarterly distribution to its investors for the 30th September 2022 quarter-end of 1.50% (cash-on-cash, non-annualized) of its Contribution Amount (in USD). Payments will be wired on the 2d of November 2022.
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Furthermore, the N.A.V. of BK Opportunities Fund-6 as of 30th September 2021 after the distribution is 79.62%.
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BK Opportunities Fund-6 net performances as of 30th September 2022 are:
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September 2022 Monthly Return (non-annualized): -5.99%
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September 2022 Year-to-Date Return (non-annualized): -8.43%
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September 2022 Annual Return since inception: +0.22%
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Cumulative Distributions inception/May 20192: 20.5%
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Cumulative Return since inception/May 2019 (Distributions + NAV gain)1: +0.12%
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(1) Based on the weighted average return of all classes since their respective closing date.
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Market Commentary & Portfolio Overview
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The political talk focuses on mid-term elections where Democrats fight to keep the Senate majority. Even if the US GDP has rebounded into positive territory, the stock market is bearish, consumption is still strong, and unemployment is historically low. While not rosy, we still expect to find investment opportunities in this unusual economic situation.
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The Economy: Fed Dual Mandate
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The corporate sector is unhappy with the expected increases in the cost of borrowing. The risk is that if interest rates are too high, it could trigger a recession due to the inability of the private sector to invest. On the other hand, the annual inflation rate of 8.2% in September is uncomfortably high for the US Federal Reserve. The Fed has a dual mandate for price stability and full employment. The September Unemployment rate is 3.5%, which is extremely low by historical standards. So from the Fed's perspective, inflation needs to be lowered while employment is currently healthy. This is why the Fed policymakers are widely expected to deliver a fourth straight supersized interest-rate hike when they meet next week, bringing the policy rate to 3.75%-4% as part of the sharpest set of rate increases in about 40 years.
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Corporate Markets: Under Pressure
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The US economy posted its first period of positive growth for 2022 of 2.6% in the third quarter, at least temporarily easing recession fears, the Bureau of Economic Analysis reported on October 27th. Corporate credit conditions remain under stress and could worsen further amid the US economic slump and the rise in interest rates. Given the continuing geopolitical tensions, talks about a recession are gathering support. The long-running issue is that the end of free money is hurting margins. So inefficient companies will have significant difficulties, simultaneously allowing corporations with sound business to show themselves.
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Corporate Loans: Opportunities
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As expected, the tighter economic environment combined with the fading covid pause led in September to the S&P/LSTA default rate increasing to 0.9% by issuer number and only 0.85% by principal amount. It is the highest level for loan default rates since June 2021, but it is still well below the ten-year average of 2%.
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CLO Market: Cautious and Opportunities
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The CLO new issue market saw some activity this quarter, but the limited demand has pushed the discount margin for the BB tranche wider. The secondary market also saw a very high level of activity. As loan prices decreased, lower tranches of CLO transactions had lower credit enhancement. However, some profiles are still showing a very strong resistance to scenarios of high defaults, and we have focused on sourcing this type of opportunities.
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BK Opp. Fund 6: Performances
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BK Opportunities Fund-6 is making a distribution of 1.50% this quarter (payments will be wired on 2nd November 2022), bringing the total distribution since inception to 20.50% non-annualized. Although robust payment this quarter (of over 5.5%), we have allocated most of it for reinvestment, as we believe current prices are an opportunity to boost the fund’s performance. The annual return since inception is +0.2%, well below our expectations. Still, 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 a level closer to our target.
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Quarterly Summary
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(1) Cash on cash, based on the Contribution Amount.
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(2) Since the inception of BK Opportunities Fund-6, May 2019.
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(3) Net Asset Value after distributions as of 30th June 2021, as a percentage of Contribution Amount.
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(4) Sum of the cumulative distributions since inception and the 30th June 2021 NAV.
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Fund and Market Performances as of 30th June 2022
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(7) Based on the total return level of the JPMorgan CLO Index “CLOIE” for post-crisis CLO tranches rated BB (respectively B).
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(8) Index designed to represent the overall hedge fund universe.
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(9) S&P LSTA US Leverage Loan Index Total Return, sums principal, interest and reinvestment returns
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Monthly Performances
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Cumulative and Quarterly Distribution
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Fund’s Summary
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| 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 |
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(5) Excluding the possible 2‐year extension
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(6) First quarterly distribution made on 30th September 2020
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Portfolio Manager
Olivier Gozlan
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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.
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