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?
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).