Fifth Street loses staff, hires Morgan Stanley – exclusive

The Connecticut-based credit manager’s staff has been thinning through a combination of layoffs and departures. The firm is also now working with Morgan Stanley on a potential sale.  

Fifth Street Asset Management has seen a string of investment staff leave as it cuts costs and considers a potential sale.

The firm, whose two BDCs have been the subject of shareholder criticism and lawsuits, is working with Morgan Stanley on the sale, sources tell PDI.

Morgan Stanley and Fifth Street spokespeople declined to comment.

David Heilbrunn, a managing director who focused on CLOs, and Greg Browne, a managing director who oversaw healthcare origination, both recently left Fifth Street, according to sources.

Heilbrunn joined Fifth Street about a year ago and was based at the Greenwich, Connecticut, headquarters. He was previously a managing director at The Carlyle Group.

Browne has worked at Fifth Street in Chicago since 2011. Prior to that he held senior roles at other Chicago-based lenders including CapitalSource Finance, Heller Financial and GE Capital. 

Neither could be reached for comment.

Fifth Street has also laid off some of its associate- and analyst-level staff.

Speaking on Fifth Street’s first quarter earnings call on 17 May, founder Len Tannenbaum said the firm was cutting staff in an effort to rein in costs. “Last year we made a decision to right size our business and rationalise costs… We have experienced both voluntary and involuntary employee attrition over the past few months,” he said.

Renee Noto, who was a managing director of business development at Fifth Street since late 2014, joined Brightstar Capital Partners in November. Other recent departures have included Fred Buffone, who went to Freedom 3 Capital, Leon Han, who joined AB-PCI, and Matt Tier, who went to Owl Rock Capital Partners.

PDI reported in February that Fifth Street was working on a potential sale and had engaged Greenhill & Co as its M&A advisor. However, it switched to Morgan Stanley after Steven Friedman, head of financial services advisory at Greenhill who was working with Fifth Street, joined Guggenheim Securities.

A spokesman for Greenhill and Friedman declined to comment.

It is not yet clear whether Fifth Street would sell the whole firm or parts of its business and contracts. Sources say that it is difficult to sell an investment advisor that’s mired in criticism, though others argue that selling an investment advisor with the contract to two BDCs and CLOs would be a lucrative deal for the buyer. The new manager is likely to take over the contracts thereby ridding the BDCs of their woes.

Fifth Street and its two BDC’s stock prices have slumped over the last two years and other sources say that selling at low trading prices would be a bad deal for Tannenbaum. Fifth Street’s stock price has dropped to about $4 per share from $17 at the time of its IPO in 2014.

The larger Fifth Street Finance Corp BDC has also been trading at around $4-$5 per share lately, down from a peak of $14 in 2011. The smaller Fifth Street Senior Floating Rate Corp vehicle has not suffered as badly. It is trading at $8 per share, down from $14 in 2014.

Other BDCs are known to be on the block, including Full Circle Capital, which is working with Houlihan Lokey on a sales process. American Capital was bought by Ares Capital last month in a $3.4 billion deal after receiving shareholder criticism from hedge fund Elliot Management.