The fifth iteration of this ranking – which lists managers by total capital raised over the past five years – could not have come at a better time. Today, private debt stands at a crossroads in its short history. After staying on a virtually uninterrupted upward trend since the days of the global financial crisis, the industry has reached a point where the amount of capital raised is unprecedented. Already, 2017 is on course to be a record fundraising year with $130 billion raised in the first three quarters of the year. Meanwhile, the top 50 biggest managers have seen their combined five-year total grow by nearly $100 billion to $640 billion.
Many of the names at the very top will be familiar to our readers, comprising firms that have managed to capitalise on their early success to forge a dominant market position. But the ranking also features plenty of new names, be they fast-growing private debt managers or well-established asset managers which have bolstered their exposure to the asset class. The private debt universe is expanding and to reflect that new reality we have expanded the list – which until now has been the PDI 30 – to bring you our first PDI 50 ranking.
1. Lone Star Funds $37.8bn (2016: 1)
Holding the number one spot for the second year running, Dallas-based fund manager Lone Star has been a leading star in the PDI 30 since its inception in 2013. Founded by John Grayken in 1995, the firm holds on to the top spot thanks to strong appeal among investors for its distressed and real estate funds continuing. This is despite its five-year total dropping by nearly $5 billion from a year ago.
With a large pool of returning investors, Lone Star funds typically spend little time on the road. In the past two years the firm has concluded some notable fundraises including a final close on its fifth distressed real estate fund, which exceeded its $5 billion target to raise $5.9 billion after just five months. Shortly after that, the firm hit a close on its 10th distressed fund, again beating a $5 billion target to raise $5.5 billion. The previous fund in the series also beat its target, raising $7.2 billion in 2014.
So far, 2017 has been a significant year for Lone Star, with a shakeup of its top ranks over the summer, the most notable move being Nick Beevers’ replacement of Sam Loughlin as the firm’s new president of North America. The business then made headlines in May when it pulled out of its Middle Market Growth Programme joint venture with Antares Capital. The programme, which existed in its current form for just under 18 months, provided unitranche financings of up to $350 million.
The company has also been looking to broaden its horizons in emerging markets. In February, it teamed up with India’s Infrastructure Leasing & Financial Services to set up a $550 million joint venture to invest in stressed projects in the country.
2. M&G Investments $36.5bn (2016: 4)
Europe’s top ranking private debt manager has been a regular fixture in the top 10 for the past five years and this is its highest billing yet. The London-headquartered firm takes second place after increasing its five- year fundraising total from $29.3 billion to $36.5 billion. M&G manages both a large alternative credit business and a sizeable real estate debt fund unit. The company has the distinction of being the only European manager to make the top 10 for each year that it has been included.
M&G is currently deploying capital from its second and third real estate debt funds, which raised a collective £1.35 billion ($1.8 billion; €1.5 billion) in 2014.The bulk of its capital comes via co-investment and separate account commitments from large institutions for tailored real estate debt strategies. The most recent real estate debt vehicle, which beat its $500 million target to raise $750 million, attracted commitments from the New Jersey Division of Investment, New Mexico State Investment Council, North Carolina State Treasury and the Wyoming State Loan and Investment Board, among others.
The firm, which handles investments across direct lending, leveraged finance and infrastructure debt, has a total £281.5 billion in AUM. Recent deals include a £230 million refinancing loan for property developer Northern Trust Group; a £70 million whole loan financing for a building developed by Rocket Investments and leased by UK hotel-chain Premier Inn; and an £85 million financing for UK-based housing association One Housing.
3. Apollo $35.2bn (2016: 5)
Apollo saw its five-year total swell to $35.2 billion this year, bringing it up to the third spot for the second time, the first occasion being in 2014. Earlier this year, the firm – headed by Leon Black – announced it would soon be deploying its flagship Apollo Investment Fund IX, which exceeded its hard-cap in June with $24.7 billion in commitments. The fund will focus on three strategies: distressed debt, corporate, carveouts and opportunistic buyouts.
The firm anticipates more distressed opportunities over the coming years as the cycle turns, and has adjusted its strategy accordingly, with 20-25 percent of Fund IX to be invested in distressed debt opportunities. This is up significantly from the 1 percent allocated to debt in the predecessor fund. The enlarged allocation comes at the expense of the firm’s buyout strategy, which will drop to around 40-50 percent of the fund, down from 65 percent in the last vehicle. Two other sizeable credit vehicles, raised by Apollo over the past five years, are European Principal Finance III and Financial Credit Investment III.
According to the latest earnings call, the latter showed a gross internal rate of return of 2.1 percent in the second quarter and 10.4 percent the last 12 months ending 30 June.
While Apollo has a lot of capital at its disposal, the firm is realistic about the challenges the industry faces. In April, Apollo’s co-founder and senior managing director Josh Harris voiced concern over the state of the asset class, noting rising interest rates, tighter spreads and large amounts of liquidity that constitute a “recipe leading our team to be cautious”.
4. Oaktree Capital Management $33.2bn (2016: 3)
Since the PDI ranking was launched, Los Angeles-headquartered Oaktree has typically been the closest rival to front-runner Lone Star, taking second place in 2013 and 2014, and the top spot in 2015. The company – along with its founder Howard Marks – is regarded an industry titan with a tally that includes its most recent distressed vehicles Oaktree Opportunities Funds X and Xb, which raised a combined $12.4 billion since their inception in 2015.
Oaktree’s total also includes the $5 billion predecessor to both these funds, the fully deployed 2014 vintage Fund IX, which, according to the firm’s Q2 2017 report, has returned a net IRR of 2 percent to date. More recently, Oaktree launched the €1.1 billion Oaktree European Capital Solutions Fund, a successor to the firm’s first European private debt fund that reached a final close last December and will lend to mid-market companies.
Despite raising considerable amounts of money, Oaktree has fallen behind M&G and Apollo. At the same time, Oaktree has seen two big pools of capital roll off its five-year total this year: the $2.6 billion Oaktree Opportunities Fund VIIIb, a 2011-vintage appendix fund which generated 4.7 percent net IRR; and the $2 billion Highstar Capital Fund IV, a legacy vehicle Oaktree took over when it acquired infrastructure fund manager Highstar in 2014, that has now generated an 8.3 percent IRR for investors. Oaktree reported $21.5 billion in dry powder in its second-quarter earnings report this year.
5. Blackstone $33.0bn (2016: 2)
Blackstone has consistently been in the top 10 over the past five years. While it may have slipped behind M&G, Apollo and Oaktree – Blackstone took second place last year – it is only by a relatively small margin. The New York-headquarted firm manages the bulk of its private debt business via a dedicated corporate credit arm: GSO Capital Partners. Headed by founders Bennett Goodman and Tripp Smith, GSO handles a variety of debt strategies, including mezzanine, direct lending, energy credit and distressed.
The firm’s most notable recent fund closes came via its two energy credit funds and a dedicated European senior debt fund, which attracted $2 billion in commitments in 2015. In June, it was reported that GSO would target $6.5 billion for its third closed-end distressed debt fund at a time when it is favouring long-term drawdown funds over open-ended vehicles. Blackstone also manages two real estate debt funds, Blackstone Real Estate Debt Strategies II and III, which have raised $3.5 billion and $4.5 billion respectively.