Private Credit And Enforcement In China: Better Than You Think?

Private Credit And Enforcement In China: Better Than You Think?
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Shining Light On The Shadow Banking Business..Private Credit And Enforcement In China: Better Than You Think by Opalesque.TV

Barry Lau, a former lawyer at Clifford Chance London turned banker, co-founded HK based hedge fund Adamas Asset Management (HK) Limited in 2009. He serves as Managing Partner & CIO of the company.

Adamas is licensed in Hong Kong by the SFC and has obtained a RQFLP licence (Renminbi Qualified Foreign Limited Partnership) which enables the firm to allocate capital in the primary market with a focus on financing SMEs.

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As a cluster of potential borrowers, Adamas is looking at around 50 million Chinese SMEs in total and considers financing these SMEs as a structural arbitrage. The arbitrage through this dichotomy is compelling and present immediate opportunities. Currently, only 4% of Chinese SMEs are beneficiaries of bank debt. Yet, SMEs contribute to 65% of China’s GDP, created 80% of all employment within China and supply in excess of 50% of all tax income to the central government. The funding gap is estimated by Adamas to be in excess of US$1 trillion. Lau believes this compelling and immediate opportunity to provide high yielding private credit will continue for at least another decade.

The company has 40 people on the ground in Shanghai and Hong Kong. The four year track record, which includes 8% annual income distribution (on top of NAV gains), demonstrates that following a strict investment process built on local presence, selection skill of quality companies together with multiple levels of safeguards/collateral, providing credit to select Chinese SMEs can provide attractive and uncorrelated returns to investors.

Adamas’ actual experience on the ground in China also challenges the common bias against doing business in China: Out of a portfolio of 55 loans, five have defaulted, but most importantly, Adamas was able to win in court proceedings in China for the recovery of their loans. Adamas’ recent white paper “Enforcement in China” offers some experience on the enforcement procedures in China.

In this Opalesque.TV BACKSTAGE video, Barry Lau talks about:

  • Private Credit in China
  • Adamas’ industry focus, investment/selection criteria and investment process
  • Safeguards, collateral and enforcement routes employed to mitigate risk
  • Case study: Naked Stables Private Reserve
  • Tripling a market cap: How markets reward Adamas’ efforts to improve corporate governance at the company level
  • Winning by being willing to learn, patient and differentiated: Adamas is creative and flexible when working out credit models

Barry Lau is a Co-Founder, Managing Partner and CIO of Adamas. Prior to the founding of Adamas, he was Head of Fund Derivatives Asia at BNP Paribas focused on structured collateralised lending on hedge fund assets. The portfolio of collateralised loans he originated, executed and managed was around US$1 billion. Prior to BNP Paribas, he was Head of Fund Derivatives Asia at ABN AMRO focused on structuring derivative instruments on hedge funds. He was formerly a lawyer at Clifford Chance LLP, London, focused on private equity and hedge fund establishments and investments. Mr. Lau obtained a law degree from University College London.

Adamas Asset Management (HK) Limited is an award winning investment firm focused on funding growth enterprises in Greater China and Japan. The company manages capital for institutional investors, family offices and shareholders of their listed company on the London Stock Exchange (ADAM.LN)

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