Minneapolis-based Castlelake has held a final close on its Castlelake Income Opportunities II with approximately $782 million in capital commitments. This exceeds its $750 million target. The fund had been hard-capped at $1 billion.
CIO II, an asset-backed private credit product, already has deployed $333 million across several investment opportunities. The opportunities include real assets, specialty finance and aviation.
The fundraising took place against the backdrop of a determined effort by the Federal Reserve to defeat inflation even at the expense of creating a recession. Evan Carruthers, managing partner and chief investment officer, told Private Debt Investor: “In our view, this is a great time to be an asset-backed private lender in this marketplace. We believe that we have an opportunity to take advantage of a real void of liquidity as we see that banks have pulled away and the capital markets have shut down.”
Its investments include stabilised commercial real estate in Europe and transitional bridge lending in North America, specialty finance solutions for small and medium-sized businesses and consumer finance providers, and secured aviation-related lending.
Castlelake’s investors in general, and those of CIO II in particular, are institutional, Carruthers said. They are “state pension plans, sovereign wealth, insurance companies, endowments and foundations”. He believes that this product in particular fits well with insurance company mandates.
Carruthers and Rory O’Neill founded Castlelake in 2005. The statement on the fund closing says that the company has $21 billion of assets under management.
The Federal Reserve this week announced the latest of its string of interest rate hikes. This announcement confirms Castlelake’s view of the macro environment for which CIO II is designed.
“We expect a protracted recessionary environment in both the US and Europe driven by rising interest rates in response to elevated inflation,” Carruthers said. He said that there is a particularly challenging feature to the present round of inflation. It is largely supply-driven, and “this is difficult for the Fed and the ECB to control. Both the Fed and the ECB will have to prove up to that challenge”.