Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

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john_bon_jovi
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Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by john_bon_jovi » Thu Jan 14, 2016 1:05 pm

Hello all,

I'm a newbie on this site and I was told that the following question from my dad (recently retired) would be appreciated here:

[My broker] has suggested I invest some on Czech Asset Management, L.P., Czech III Senior Loan Trust. They "invest substantially all of its assets in SJC Onshore Direct Lending Fund III, a direct lending credit fund focused on originating floating rate, senior secured loans primarily to U.S. middle market borrowers." Have you heard of these people, could it be a good idea?


So bogleheads, is this a good idea? Also, any thoughts on the motivation for [the broker] to recommend this investment to my father?

Kind regards,
JBV

Alex Frakt
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Alex Frakt » Fri Jan 15, 2016 2:40 pm

I am returning this post following moderator review (and after removing the broker name and editing the title). Please take this at face value.

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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Alex Frakt » Fri Jan 15, 2016 2:48 pm

The SEC Form D Notice of Exempt Offering of Securities for this is here: http://www.sec.gov/Archives/edgar/data/ ... ry_doc.xml . Not that it is going to tell you anything about the intended or actual investments.

john_bon_jovi,

This is a private equity offering. They do not have to disclose anything about their investment philosophy, intended holdings, fees or anything else. All we can tell is who offers it and that those selling it will receive a commission. Because of this, the only advice we can give is to stay far, far away.

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David Jay
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by David Jay » Sat Jan 16, 2016 7:50 am

For your Dad's sake, I would pick up on one of Alex's points and phrase it to your Dad this way:

"With so many SEC (US government) regulated funds available, giving your money to a private trust without any public transparency is a really bad idea."
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Rob5TCP
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Rob5TCP » Sat Jan 16, 2016 8:13 am

Finding anything about III was impossible; very little information is available about II.

This is about Czech II
http://www.sec.gov/Archives/edgar/data/ ... ry_doc.xml
http://www.formds.com/issuers/czech-ii- ... loan-trust
http://www.bloomberg.com/research/stock ... =241585113
http://www.bizapedia.com/de/CZECH-II-SE ... TRUST.html

Why would a broker recommend this to someone -- it pays a hefty commission would be my guess.
How do you even evaluate something like this ?
:oops:

Hunky-dory
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Hunky-dory » Sat Jan 16, 2016 8:26 am

An offering relying on the Reg D exemption does not mean that the fund is not subject to the SEC it just means that it is not required to be registered, which among other things means that there will be restrictions on resale and limited reporting requirements outside of the rights granted in the legal documents themselves. I raise that point because U.S. securities laws still apply to the offering even if it is a private offering (e.g., securities fraud is still securities fraud even if it is not a registered company).

Your dad should have access to a private placement memorandum or other similar offering document. Any investor considering one of these investments needs to carefully read both the offering documents and the legal documents related to the investment. These types of investments are generally not appropriate for a large number of investors and certainly will be frowned upon by the vast majority of bogleheads. I won't speculate as to the motivation of the broker but would suggest your dad have that conversation.

Lafder
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Lafder » Sat Jan 16, 2016 11:00 am

No it is not a good idea, it is a terrible idea. A regular FDIC insured bank account would guarantee no loss in value. Even though I keep only my emergency fund in cash, I would prefer cash to that offering.
lafder

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BigFoot48
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by BigFoot48 » Sat Jan 16, 2016 11:35 am

Tell your dad to run from this investment and fire the broker on his way out.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 12-time loser

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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by Valuethinker » Sat Jan 16, 2016 12:05 pm

john_bon_jovi wrote:Hello all,

I'm a newbie on this site and I was told that the following question from my dad (recently retired) would be appreciated here:

[My broker] has suggested I invest some on Czech Asset Management, L.P., Czech III Senior Loan Trust. They "invest substantially all of its assets in SJC Onshore Direct Lending Fund III, a direct lending credit fund focused on originating floating rate, senior secured loans primarily to U.S. middle market borrowers." Have you heard of these people, could it be a good idea?


So bogleheads, is this a good idea? Also, any thoughts on the motivation for [the broker] to recommend this investment to my father?

Kind regards,
JBV


Larry Swedroe I believe has commented on these. It may also be in his book on Alternatives (which I have not yet read).

Basically this is risky stuff. Banks have made these loans to corporates, often corporates involved in private equity transactions (Leveraged Buy Outs - LBOs). The theory is that if something goes wrong because they are *senior* loans, they rank ahead of other creditors-- so they should be safer than junk/ high yield bonds, say (from the same borrowers).

The problems are:

- you don't know what they have lent to
- that changes over time
- the loans are pretty illiquid, so there's no way for the investor to get their money out, other than for the loan to be repaid at the end of say, 5 years (typical corporate loan 3-7 years in term) AND some requirement for the fund manager to distribute the cash rather than reinvest it
- fees can be large and opaque

Also if the US does go into recession in 2016, many of these companies will struggle to repay these loans-- so you will take capital losses (as well as a drop in income).

So an illiquid high fee investment. Bank CDs would be a hell of a lot more transparent investment and, within FDIC limits, essentially risk free.

I suspect the broker gets a pretty big fee for selling these things. Probably your father is wealthy enough that he makes a good "target" for this kind of investment, when my father was alive we saw a few of them from his broker (one or two of which he bit).

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unclescrooge
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Re: Is this a good idea? [private equity offering "Czech III Senior Loan Trust"]

Post by unclescrooge » Sun Jan 17, 2016 2:42 am

It might work well for awhile. Until it doesn't. And then you will lose 100% of your investment.

I've never made money on any of these.

The most profitable investments have been in real estate (due to leverage, and exiting before the crash), and publicly traded stocks.

You really don't need to experiment in anything else.

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