Building a fund isn’t easy. Kevin Gray, CEO of GFS Investments, Inc., knows firsthand just how much work goes into it. And he knows that building a successful fund with fixed yields takes more than just work: it requires savvy, logistics and strategy. When GFS Investments initiated GFS Global Yield Fund LP, Gray and William Biddle, the fund’s CFO, struck the right balance in creating a hybrid – equities and fixed income – with yield.

Gray explained how the fund evolved this year as a natural progression of GFS Investments’ structured finance division. “The fund is necessary because of the size of the allocations of deals that we’ve been seeing, and there was a requirement for outside capital for the first time,” he noted, talking about the fund’s inception.

Using a collateralized loan structure with loans underwritten by a non-banking financial institutions allows liquidity in the event of default, which in turn minimizes risk and allows for fixed yields not often seen in today’s pension funds.

“Our concentration now is raising the fund to take full advantage of the matrices that we see out there. Our current fund is an exempted fund under Cayman Islands law and is yielding a fixed 8%,” Gray said.

“Collateralized loans usually remain from one to five years, with a standard of three. The range of the interest rates is usually 6-15%, depending on the quality of the collateral. Collateralization ratios are anywhere from 1.4 to 2 times the principle balance, and we have a pretty safe matrix of getting out of a position before it meets the principle balance if there’s a case of default,” Gray explained.

“The fund acquires the loans after they’ve originated from the network that GFS has established with other non-banking financial institutions who are underwriting such loans,” Gray clarified. “Loans are usually non-recourse loans backed by liquid collateral from securities, or equities, or by some kind of financial vehicle in the Pacific Rim markets, mainly.”

The fund’s out-of-the-gate success is due, in part, to GFS’ experience working with newly emerged Pacific Rim markets such as Hong Kong, Singapore, India and Indonesia.

Gray refuted the common misconception that these are still emerging markets. “They’ve already emerged – and they are growing at anywhere from 4-6% on GDP. These are stabilized markets,” he said, adding, “Their growth is strong, and it’s a good market for what we do.”

In the eight years since GFS has been working with Pacific Rim markets, they’ve found their preferred structured financing deals to be more common and that backing collateral tends to have increased liquidity in the region.

“We’ve done a lot of work on this and we’re trying to build this fund,” Gray added. “It’s something people should pay attention to – especially money managers who are looking for a fixed yield.”

For more information visit: www.gfsglobalyieldfund.com