With a long and successful record of attracting new investors to the aircraft finance market, Investec has launched another Global Aircraft Fund. The fund provides institutional investors and pension funds with the ability to invest in aircraft, leased to airlines globally, giving high, single-digit, running yields with mid-teen target total returns.
Investec Aviation Finance announced the first close of its aircraft fund, Investec Aircraft Syndicate Limited (IASL), on November 19. IASL will invest over $500m in new generation, fuel-efficient aircraft on lease to a number of leading airlines across the globe. It has the ability to increase the size of the fund and is in discussions with various parties looking to invest in its second raising.
“This is the first close of this fund but we have the ability to scale it up which we are exploring at this point in time,” says Ramki Sundaram, co-head of Investec’s Aviation Finance division. “We have more interest from various institutions in the UK and Europe as well as the rest of the world. The main drivers of interest for this fund are uncorrelated, stable returns and the running cash yield –the way we have structured the fund is to provide good cash return for investors, it’s not just the return on the asset.”
“We have identified young aircraft on operating lease to leading airlines,” he adds. “We have targeted the lower end of the risk-return spectrum. We are looking at the more liquid aircraft types, which are on lease to Tier 1/2 airlines to mitigate the risk of aircraft coming back as a result of an airline default.”
Investec has a track record of providing capital to aircraft operators from non-traditional sources. “There are very good reasons why these investors are attracted to this asset class: it is very stable and we have been able to convert this asset into investable paper in various frameworks. We have 25 individuals around the world that manage the risk of the portfolio for the life of the product. Our team includes a number of ex-airline, leasing and technical personnel which gives investors comfort on our ability to manage the assets. Investec also provides senior and mezzanine debt structure, where we work with institutional investors to co-invest in these products.”
Investec has also been able to bring down the investment size for IASL, which has attracted more investors. “The minimum investment into this fund is $10 million but we are working on a consolidated pool for smaller investors to come in,” says Sundaram. “We are bringing down the investment size giving investors the opportunity to invest in the right size for them.”
Peter Watson, a senior member of the aviation team, says: “Our investors want stable, good running yield coming in over a period of time. They are less interested in investing today and getting out tomorrow because the liquidity they are getting from our funds matches their liability profile.”
The key investment proposition of IASL is the high single digit cash yield paid from contracted fixed cashflows locked in for an average of five years; the investment in a real asset class that has a demonstrated track record of providing stable and uncorrelated returns; the overall return expectation of mid-teens over a five to eight year horizon; all of which is managed by a highly experienced aviation finance team within Investec.
Investec’s previous offering, Investec Global Aircraft Fund, which has many similar characteristics, manages 20 aircraft with an acquisition cost of approximately $1bn.
These funds have attracted investments from insurance companies, pension and superannuation funds, private banking and high net worth individuals across various geographies
First close of new aircraft fund by Investec
