Investment and merchant bank Ion Pacific today announced that one of its funds had acquired a secondary stake in a leading global VC fund from a distressed limited partner (DLP).

The Ion fund, Phillion I LP, assumed the full commitment of the DLP, which was unable to fulfil its US$20m obligation. At the time of Phillion’s assumption of the interest, the DLP had already invested 44% of its commitment.

The transaction, which was highly structured and innovative, provides Phillion seniority over the DLP for any fund distributions, thereby creating enhanced returns and a quicker pay back versus a traditional secondary stake purchase.  In addition, although Phillion’s day one cash outlay is minimal, Phillion benefits from an immediate claim to distributions on the entire US$20m commitment.

“We created a win-win situation for our investors and the DLP by structuring a deal that provided us excellent returns while providing the DLP the incentive to participate, which was important to the VC fund in its desire to avoid a default among one of its limited partners. An intimate understanding of Chinese investors and the China market landscape was crucial to executing this deal,” Ion Pacific co-founder Itamar Har-Even said.

Ion Pacific co-founder Michael Joseph added: “The transaction was structured to ensure Ion Pacific’s fund investors obtained the stake at a significant discount to net asset value, as well as enjoying very strong downside protection.”

Ion Pacific launched in 2015 and is headquartered in Hong Kong with an office in London. The firm specializes in cross-border deals, bridging the capital and investment flows of both inbound and outbound Asia deals. Ion Pacific’s core business focus is investment banking, conventional and alternative asset management and merchant banking.