Investcorp may have just closed its acquisition of 3i Debt Management, but executives already have their eyes on the future of new investment strategies the new combination could build out.
Rishi Kapoor, co-chief executive of Investcorp, told Private Debt Investor one of the key goals in acquiring 3i Debt Management was expanding Investcorp’s product offering. Before completing the transaction, Investcorp focused on private equity, real estate and alternative investments, which included multi-strategy vehicles along with hedge funds.
With the addition of 3i’s debt management business, which changed its name to Investcorp Credit Management, Investcorp has added a collateralised loan obligation management strategy and several additional open-ended funds. Kapoor said he hopes to add several more credit products soon.
“In the future, additional adjacencies would include mid-market direct lending in the US and Europe,” Kapoor said.
He also said they plan on adding a structured credit component, which would invest in the mezzanine and equity non-risk retention portion of CLOs. US regulations that took effect in December require CLO managers to hold a portion of the vehicle’s equity. Investcorp currently has a European mid-market fund, but it does not do direct lending.
The Investcorp-3i deal, which was agreed towards the end of October last year, closed Friday. It resulted in total cash proceeds to 3i of £270 million (€314 million; $330 million). This includes £34 million from the repayment of loans provided to 3i to fund two CLO warehouses, and an exceptional profit on disposal of £47 million.
Private equity firms adding private credit, specifically lending to mid-market or lower mid-market companies, to its menu of investment options has been a well-documented trend over the past couple of years.
In February, BC Partners hired Ted Goldthorpe, the former president of Apollo Global Management’s business development company, to head its private credit operations. The Carlyle Group effectively wound down its hedge funds and plans to emphasise credit as a key way to grow its assets under management.
Notable entrants from last year included Adams Street Partners brining on two former mezzanine investment professionals from Oaktree Capital Management as well as Riverside Company adding three hires from NewStar Financial, including founding partner David Dobies.
Looking back further, Angelo Gordon & Co. added a mid-market lending arm, Twin Brook Capital Partners, in 2014, and TIAA added Churchill Asset Management, which focuses on providing senior secured debt in transactions involving private equity sponsors, in 2015. And none of these include the proliferation of new firms such as Backcast Partners, Owl Rock Capital, Scargo Hill Capital.
Despite the product offering expansion, Jeremy Ghose, head of Investcorp Credit Management, said the credit investment shop will not abandon its specialty.
“We will not move away from our core competence, which has everything to do with the corporate credit landscape. I continue to feel very bullish about the macro-view,” Ghose said.
Pension funds, insurance companies, endowments, foundations, high-net-worth individuals and the like continue to search for yield in a world with historically low interest rates, he explained. “We think that the corporate debt spaces will continue to grow as an asset class for the foreseeable future,” he concluded.
Kapoor said the acquisition serves other purposes for Investcorp as well, including increasing its AUM, solidifying the firm’s global investor footprint and adding to Investcorp’s profitability.
Last year, Investcorp set a goal to grow its AUM from $11 billion to $25 billion over the next five years. The 3i Debt Management deal will push Investcorp’s AUM to around $23 billion, executive chairman Mohammed Al Ardhi told PDI sister publication Private Equity International.
3i Debt Management operated from offices in the US, UK and Singapore and had funds under management of circa $12 billion. In September, just before the Investcorp announcement, the firm closed its latest CLO vehicle, Harvest XVI, on €452 million.
– Andy Thomson contributed to this report.