Matthew G. Kosara
Manager,
Alternative Investments

Once again, we see mounting evidence of institutions increasing their allocations to alternative investments. Alternatives have seemingly become the panacea for the epidemic of anemic returns in many traditional markets. It’s been a very healthy market over the past few years for alternatives of many varieties. With low rates leading to easier credit and thus higher leverage, many investment funds have been able to grow their investment books in a market with reasonably good vital signs.

More recently we’ve seen a slight shift in doctrine as credit has tightened and many private equity and hedge strategies have converged.

Many institutions have become more interested in those alternatives that are able to provide a viable alternative to their public market fixed income allocations as well. While many alternatives have demonstrated volatility that resembles an EKG, leveraged senior loan funds, mezzanine funds, infrastructure funds and other fixed income surrogates have been able to provide more reliable returns. The stability and consistency of these products makes them an ideal investment for many institutions, especially pension plans, given their need for income from which to pay members’ benefits.

In the third quarter of 2007, HGK officially launched the HGK Strategic Income Fund to serve the special needs of institutions — specifically pension plans. The fund invests in individual leveraged senior loans of middle-market companies, and is built around the concept of offering an attractive investment option for ERISA benefit plans, that provides high, risk-adjusted returns, with relatively low volatility, compared to many other options available on the alternative investment landscape. The Fund features a single fee layer, low leverage levels, and no hard funds lock-up.

To bring the HGK Strategic Income Fund to its clients, HGK partnered with Monroe Capital LLC, a leading specialized financial company that offers a one-stop financing solution for senior secured and junior secured debt to middle-market companies in diverse industries. Monroe has a full team of qualified professionals devoted to the origination, underwriting, servicing, and monitoring of loans made across the U.S. Its management team has been working together continuously for over 17 years, and has invested more than $9.0 billion in middle-market loans. By leveraging its experience in the space, Monroe is able to offer companies a wide range of viable financing solutions.

It is our belief at HGK, that by pursuing a solution-based procedure for the development of an alternative product, we will best be able to serve the needs of a growing number of our clients and others.