‘Best Efforts’
The private-bank unit of Wells Fargo & Co. has customized alternative-income funds for clients that invest in loans, leases or a mix of both since 2012 and pay out income each quarter, said Adam Taback, president of alternative strategies at the San Francisco-based bank. They’ve attracted hundreds of millions of dollars, he said.
One fund, which acquires and leases out assets such as rail cars, had never distributed income to investors, so Wells Fargo Private Bank asked the manager to create a share class that issues quarterly interest.
Investors usually must tie up their capital for two to four years with some strategies requiring as long as a decade, Taback said. Some of the funds have produced 10 percent returns including payouts, he said.
Loans are a market where investors need to be “extremely careful” and choose reputable managers, said Todd Petzel, chief investment officer at New York-based Offit Capital, whose clients usually have at least $10 million.
“We’re seeing all kinds of private-loan funds,” Petzel said. “When you go digging you sometimes discover that these are companies that aren’t getting bank financing for good reasons.”