Intermediate Capital Group (ICG) has raised E250m for its latest collateralised debt obligation (CDO) fund, despite a difficult environment.
The fund follows in the footsteps of Eurocredit CDO II, which closed on E350m in October 2000. “Market conditions are very tough, and at the moment the only deals being done are investment grade and loan deals,” said Andrew Phillips, a member of the ICG board and head of its non-mezzanine lending activities. “There are no synthetic CDO loans being done at sub-investment grade level, so the market is pretty limited and it’s quite hard to differentiate one deal from another.”
He added: “Investors are very choosy and it’s a tough time for existing fund managers, never mind those seeking to get new funds off the ground.” Among those to have successfully raised CDO funds this year in what is still a young industry are Duke Street Capital (E550m) and AIB Acquisition Finance (E407m).
The CDO fund is a pooled investment vehicle set up to buy debt assets. To finance its investments, the pooled vehicle issues bonds to investors. It is one area where Phillips believes UK investors lag behind their continental European counterparts. “It is still pretty unknown in the UK but investors in Germany, the Netherlands and the Nordic countries are all up to speed and some have quite strong views. That can make life difficult because if everybody gets what they want, then deals are undoable.”
As well as being well informed – or perhaps because of it – investors are proving difficult to attract into funds. “We used to be able to whip and drive investors, and either they joined in or they didn’t,” said Phillips. “Now you go to see them and they say ‘give me two euros of your double As’.
A chink of light is provided by high net worth individuals, who have begun investing for the first time in CDO funds through private banks as part of a shift to fixed income products from equities. “For the first time, they have accounted for a decent proportion of our funding,” said Phillips.
Eurocredit CDO III will allow investors to access the leveraged buyout market through a mix of senior debt, mezzanine and high yield instruments.