Leading from the front

Jeremy Ghose is making waves. As he poses for Private Debt Investor’s photographer in the central atrium of 3i Group’s London offices, his colleagues gather to tease their resident cover star. And as chief executive of 3i’s fastest growing business line, it’s perhaps appropriate that he’s the centre of attention.

From a standing start, 3i Debt Management has surged forward to become the venerable asset manager’s largest business segment by assets under management. AUM rose 93 percent in the 12 months to 31 March alone. 

3iDM was established in 2010, and launched its first credit opportunity fund the following year, raising €50 million. As of March this year, 3iDM managed 24 funds and had assets under management of £6.4 billion ($9.9 billion; €7.6 billion).  By contrast, its private equity business has AUM of £4.9 billion, and its infrastructure group £1.6 billion.

3i Group as a whole has had its trials and tribulations in recent years, with a significant restructuring featuring office closures and redundancies instigated to cut costs and streamline the business. And just before going to press its Nordic and UK buyout heads departed. So while its private equity business goes through a period of flux in which its focus is largely on realising investments, it’s encouraging that 3iDM is on an upward trajectory.

Importantly, the market obviously buys into the group’s three-pronged strategy (private equity, infrastructure, and private debt) – 3i Group is that rare thing, a listed alternatives manager trading at a premium to net asset value.

Through organic growth and the acquisition of other platforms, the firm’s debt business has upscaled so quickly it has rapidly become what Ghose claims is the largest European-headquartered private debt fund manager. And the journey, for him, is only just beginning.


A meteoric rise

Ghose has come a long way. The son of an Indian father and Irish mother, he spent his formative years in Calcutta. Ghose began his career at HSBC on a grad scheme. He then moved to Mizuho, or Fuji Bank as it was then, in 1988.

“When I joined Fuji in 1988 it was a AAA rated bank, it was a prestigious thing to be doing in those days,” Ghose says. “I started as a credit analyst on the floor, making cups of tea and coffee, and finally ended up on the board of the bank. I was on the board for almost six years, and oversaw the global non-investment grade private equity based loans business – everything excluding Japan.

“In terms of career highlights, working my way up literally from the bottom to the executive board of the bank was probably the key one. I was the first non-Japanese member of the board in the bank’s 200 year history. Clearly Mizuho was and still is one of the largest banks in the world, so helping to grow its international franchise was another big highlight.”

Ghose launched Mizuho’s asset management business – Mizuho Investment Management (MIM) in 2005. But following the collapse of Lehman Brothers in 2008, it soon became apparent that large investment banks were perhaps not the best home for third-party fund management groups.

“The world changed with the Lehman debacle. One had to step back and reassess what was going to be the next challenge. I figured that frankly, non-bank banking was the area that would grow substantially over the next decade.

“With hindsight, setting up that subsidiary [MIM] turned out to be fortuitous in terms of timing. Clearly Mizuho wanted to reassess its capital requirements in light of the regulatory and accounting changes like Basel III and FASB 167; the bank felt it could no longer support the growth of the business further with seed capital, so we turned towards finding an elegant solution that would be a win-win situation for both the bank and Mizuho Investment Management. That started a discussion with about a dozen counterparties globally, including well known sovereign wealth funds and asset managers, and clearly 3i too,” Ghose explains.


A new home

Ghose and his team very quickly narrowed down the field from a dozen conversations to two or three that they progressed in detail, before it became obvious that 3i was the most natural fit.

“3i had a number of attractions. I figured that in order to grow the credit business, one would need access to permanent capital. I think being able to seed funds as appropriate, being able to acquire platforms and managers to consolidate – those were going to be critical in terms of being part of the development of the business going forward,” Ghose explains.

As the oldest listed fund manager in Europe, with a track record going back to the Second World War, 3i’s heritage was another attraction, as was its strong pedigree with regard to corporate governance.

“That’s an area that has become very important with all the regulatory changes and the continuous scandals over the last few years – the likes of Madoff. Having a firm like 3i, which is highly regarded in terms of its governance and oversight, and for its processes, was going to be key as investors, be they sovereign wealth funds or high net worth individuals or family offices, would invest in the knowledge that there is a lot of importance placed on those aspects that for a while went off the charts,” he says.  

3i paid £18.3 million for MIM, which brought with it £3.7 billion-worth of AUM.

The negotiations over the 3i / MIM deal were led on the 3i side by the incumbent chief executive at the time, Michael Queen. He had identified the need to diversify away from core private equity, and was in the process of reshaping 3i.

“3i’s also on a journey,” Ghose says. “We went through a big regime change about a year ago and now we’re moving to be recognised as an alternative asset manager of size. What that means is diversifying away a little bit from the group’s private equity heritage. We have a very profitable and growing infrastructure business and to that we’ve added the debt management platform. That will then help to bring in third party fee revenues which will complement and balance the capital gains nature of the PE business. In just over two years since I’ve been here, debt management has  doubled in size.”

But if Queen was supportive, his replacement in 2009, Simon Borrows, was even more so. Borrows helped to establish boutique investment bank Greenhill & Co, and worked on the listing of 3i back in 1994.

Commenting on Borrows, Ghose has this to say: “He very much ‘gets’ debt. He also understands the wider picture in terms of the growth of private debt globally that we’re beginning to experience. We’re convinced it’s going to be a major asset class.”