DSC Meridian launches ESG-focused credit fund

New York-based hedge fund firm DSC Meridian Capital launched a new distressed and event-driven credit fund focused on ESG and corporate engagement and hired Paula Luff as director of ESG research and engagement to lead the new investment effort.

The firm launched officially the Climate Action Fund (CAF), which combines the investment strategy of DSC’s established and well performing Credit Opportunities Fund with rigorous decarbonization standards, in a bid to provide an investment solution for asset owners concerned about climate change. Officials at DSC Meridian believe it is one of the first U.S.-based distressed and event-driven credit managers to analyze and incorporate ESG risk factors.

Founded by the former Head of Credit Research and Co-Portfolio Manager of the Paulson Credit Fund Sheru Chowdhry in 2018, DSC Meridian Capital has grown to roughly $400 million across a variety of niche credit plays. Officials declined to comment on AUM, but the CAF launched with $65 million and further commitments are thought to be taking the offering to over $150 million soon.

The firm’s flagship opportunistic, event-driven credit strategy is performing well, according to figures obtained by Alternatives Watch. DSC Meridian was up year-to-date through March 9.6% and in 2020 exceeded its benchmark with gains of 13.1%.

At Paulson, Chowdhry oversaw a multi-billion dollar credit portfolio through multiple credit cycles and led the creditor committees of some of the largest bankruptcies following the global financial crisis. At DSC, his goal is to integrate material ESG factors and pursues active corporate engagement to help shape positive ESG-related outcomes.

“Institutional investors are increasingly looking to partner with firms that not only provide investment alpha, what we refer to as ‘doing well,’ but also to deliver noticeable positive change with investments, or ‘doing good,’” said Chowdhry. “We believe issuers in the high yield universe are ripe for corporate engagement and we are delighted to have Paula join our team to drive corporate engagement efforts, which is so crucial to our mission.”

Luff, a veteran leader in developing and integrating sustainability programs at multi-national corporations in the pharmaceutical and energy industries, joins DSC Meridian from Inherent Group. She was in charge of the investment managers’ development of an ESG platform and led numerous corporate engagements.

Through corporate engagement, DSC Meridian hopes to enhance overall risk management, unlock idiosyncratic ESG value, and align portfolio companies with science-based climate standards set by the Paris Climate Agreement and UNPRI.

“Our firmwide ESG integration will draw on the Sustainability Accounting Standards Board (“SASB”) framework, proprietary screening through robust fundamental analysis, and detailed research on the issues we believe most impact valuation and creditworthiness,” said Luff.  “We anticipate that, as a team, our collective ESG and high yield investing expertise will allow us to effectively and meaningfully enact positive change in a universe of issuers that have been largely overlooked.”