The Last Word: To Do List

The New York-headquartered credit firm’s new head of corporate strategy, who joined in March, has been thinking about risk retention compliance, starting new closed-end funds, the advantages of mid-market lending versus distressed debt and evaluating opportunities in Europe. Even though he is originally from London, New York-based Weldon has no intentions of moving back. “I like living here. There is more sunshine. And, bizarrely for a Brit, I like American football and baseball more than soccer,” he admits. He recently shared the thinking behind some of his and CIFC’s plans with Anastasia Donde.

 

Q

What have you been working on so far at CIFC?

There are a number of things being vetted. One is to ensure that we control our own destiny with risk retention. We’re pricing our third CLO of the year soon which will not be risk retention-compliant and the same may be true for our fourth CLO of the year.  We do expect the last deal of the year or the first one next year will need to be compliant. We want to make sure we have plenty of cash for that.

From a product point of view, it’s been partly geographical. I’ve spent some time in London, which is an obvious place for us to grow. We’re the largest CLO manager without a London presence. If we do something there, we want it to be on the same level as we do things here. We’re a top rated manager here, so we want to have an equally strong team looking at European opportunities on the ground. We’ve been talking to some potential hires, whilst also vetting the opportunity from a macro perspective. We have a mid- to long-term view and want to build a broad sustainable business in Europe.

 

Q

What about non-CLO strategies in the US?

One opportunity that we’re looking at is to trade high yield. We have a 25 person investment team and many of the high-yield issuers are levered loan issuers, so there are synergies there. We may also go the other direction: to less liquid opportunities, like the mid-market. A lot of money has been raised for BDCs. I was previously at Garrison Investment Group, where we had a BDC. We’re trying to size the opportunity in that market. Everyone talks about the banks pulling out of the middle market, but now all the BDCs have piled in and the vast majority are trading below book. I’m interested to see how investors react to that over time. I also wonder how BDCs will perform as we head into the next credit cycle.

 

Q

What about closed-end funds?

We believe that there continue to be attractive opportunities to invest in CLO warehouses, CLO equity and CLO mezzanine bonds. We think that a closed-end vehicle is the appropriate structure to access those opportunities and obtain an attractive mix of cash-on-cash return, as well as total return from relative value trading opportunities.

If we go into the middle-market, that might also be via a closed-end fund. In terms of preparing for the next credit cycle, we’d want to raise closed-end fund money. It’s the right structure to take advantage of stressed and distressed opportunities.

Q

 How are your conversations in Europe going?

We met with the big underwriting banks in Europe. They were all very excited to be talking to us. The market isn’t as competitive in Europe. Five managers control 50 percent of the market and 10 managers are 80 percent of the market.  Even though there is a lot of portfolio overlap, investors would still like to have more manager diversity. I think our brand and success here would work well in Europe. There are a couple of CLOs being done by managers in Europe with just one guy there. For us, it’s about setting up a business, we wouldn’t launch with just one guy. We’d have a proper team and make a serious commitment to the region.

 

Q

 Have you thought about acquisitions?

Yes. We’ve talked to people and solicited ideas for potential targets, but I think people expect to get a premium and we’re not excited about that. I’m also not sure that we’d gain a lot of goodwill if we made an acquisition. If anything, there are more difficulties in taking over a business.

 

Q

 Tell me about your experience at Garrison?

At Garrison, I was general counsel and chief compliance officer. I was involved in everything from business development on the new fund side, setting up our BDC and some heavy transactional work.

Garrison invests in a lot of illiquid credit, as well as opportunistic private equity. We set up stand-alone businesses in consumer credit. We also set up a shipping company in Singapore, so I was very involved in that. We also started JVs with different operating teams. I was there for nearly seven years and enjoyed the diverse experience.  n