FROM: Don Pierce, Chief Investment Officer
SUBJECT: LuminArx Capital Management - MCA
RECOMMENDATION:
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Recommend that the Board approve the creation of a Master Custodial Account (MCA) with LuminArx Capital Management, subject to completion of operational due diligence and finalization of legal documents.
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BACKGROUND:
LuminArx Capital Management (“LuminArx”) was founded by Gideon Berger and Min Htoo in January 2023, with launch of the first commingled fund expected in Q3 2023. The firm will manage approximately $1 billion of assets in the commingled fund, with an additional $800 million of committed capital for future co-investment capacity. LuminArx is located in New York City, and will employ approximately 20 people at launch, of which 13 are investment professionals.
Prior to co-founding LuminArx, Messrs. Berger and Htoo were co-CIO’s and members of the management and investment committees at Blackstone Alternative Asset Management (“BAAM”), where they were responsible for the investment activity and company management of approximately $80 billion of assets under management. The two overlapped as co-CIO’s for four years (2017-2021), where they developed a close working relationship and refined their investment process, while contributing significantly to the success and growth of BAAM.
LuminArx offers a special situations-focused and opportunistic capital solutions strategy, which seeks to deliver consistent returns through all economic cycles. The firm focuses on achieving this through the ability to invest across the capital structure in diverse sectors, spanning both public and private markets - LuminArx will target sourcing, underwriting and structuring investments that combine debt-like downside protection with equity upside potential. Initial areas of investment will include examples such as corporate financings, asset-backed lending, and specialty finance.
Staff and NEPC believe that LuminArx is a compelling opportunity for SBCERA for the following reasons:
- Relevant experience and complementary skill set of co-founders.
o Messrs. Berger and Htoo are uniquely qualified as co-founders to apply their strategy at a new firm; in addition to their successful tenure at BAAM, they blend a holistic perspective across various investment mandates with direct investment experience across credit and equity in both public and private markets. Additionally, their knowledge covers multiple sectors and fund strategies, and they have worked with counterparties ranging from banks to governments to corporates to asset managers.
- Unique sourcing engine sustains robust pipeline.
o LuminArx has a distinctive approach that centers around pursuing activity-based solutions, strategically targeting areas with identifiable alpha sources. To execute these opportunities, the company adeptly leverages its capabilities by either internally structuring investments or actively collaborating with partners externally.
- Demonstrated ability to blend credit protection with equity upside optionality.
o Past trades have exhibited these qualities, largely through the use of creative structuring of underlying instruments. Examples include equity warrants, knock-in options, liquidation preferences and fee-based preferred equity lines of credit, as well as trade-specific and portfolio-level hedging/downside mitigation.
- Experienced team with shared work background.
o Messrs. Berger and Htoo have worked together for over five years, and have a shared skill set across the investing, strategic and operational aspects of the business. Furthermore, LuminArx has assembled an experienced senior team, all of whom have either direct or close indirect experience working with the founders in previous settings.
While LuminArx is a new firm, it represents an attractive fit within SBCERA’s portfolio, namely as a source of idiosyncratic, uncorrelated returns and the capacity to scale at size with preferred economics. The founding principals have significant relevant experience, direct philosophical alignment with SBCERA’s investment beliefs, an ability to generate strong returns and a clear motivation to succeed. Staff and NEPC are recommending the Board establish an MCA with LuminArx, with an initial funding commitment of 70bps of plan assets ($100mm) and the potential for account growth pending additional deal-specific diligence.
BUDGET IMPACT:
Investment Costs are deducted from Net Asset Value.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Thomas Kim
ATTACHMENTS:
Exhibit A: LuminArx Presentation