Another player enters the aviation structured funds market

Allco Plans to Raise A$500 Million for Aircraft Fund (Update2)
By Joyce Moullakis

June 6 (Bloomberg) -- Allco Finance Group Ltd., an Australian manager of property and aircraft, plans to raise as much as A$500 million ($418 million) for an aviation investment fund, two people with knowledge of the matter said.

Allco will seek commitments for the fund, which won't be publicly traded, from institutional investors over the next three months, according to the people, who declined to be identified because details are private.

The firm will increase management fees by creating the fund amid rising global airline passenger and cargo traffic, which are forecast to grow about 5 percent this year, according to the International Air Transport Association. Sydney-based Allco owned and managed 41 airplanes at the end of last year.

``Allco is certainly looking at alternative investments to carve out a niche in new markets,'' said Atul Lele, who helps manage the equivalent of $380 million at White Funds Management in Sydney, including finance stocks. ``New funds generally mean new income streams and management fees are generated.''

Allco wants to raise A$300 million to A$500 million for the fund, which will hold aviation assets including aircraft and the income derived from them, the people said. Christine Bowen, a Sydney-based spokeswoman for Allco, said the company plans to develop ``a series'' of funds. She declined to comment on specific investment vehicles.

White Funds' Lele said the cyclical nature of the airline industry means an aviation fund may be a riskier investment than one holding toll-road or utilities assets.

Stock Declines
Shares of Allco have declined 10 percent this year compared with an 12 percent gain in Australia's S&P/ASX 200 index. The stock closed 1 cent lower at A$11.55 in Sydney today.

The firm was a member of the Macquarie Bank Ltd.-led group that failed last month with an A$11.1 billion buyout of Qantas Airways Ltd., Australia's biggest airline.

``Up until recently Allco hasn't had the scale or diversity in their leasing assets to create a specialist fund,'' said Andrew Hills, an analyst at Wilson HTM in Sydney with a ``buy'' rating on Allco.

The company buys assets such as property, ships and aircraft that it can bundle into investment funds and manage for a fee.

Allco's assets under management held in funds jumped 36 percent to A$6 billion in the six months ended Dec. 31. The firm raised A$500 million selling stock in December to fund acquisitions and international expansion.