PDI 30: The top 10 private debt fundraisers

Grayken 180

1 Lone Star Funds, $42.5bn (2015 rank:2)

The Dallas-based distressed debt juggernaut has featured in one of the top two spots in this ranking for the past three years. Lone Star’s series of distressed and real estate funds seem to rake in large sums of money quickly and reliably. People familiar with the firm say its fundraising is often an example of the ‘one and done’ phenomenon, where the firm can collect billions from returning clients in a single close.

The firm’s fifth distressed real estate fund closed on $5.9 billion in April, after just five months of fundraising, surpassing its $5 billion target. Lone Star is now in the market with its 10th distressed opportunities fund. The last fund in this series smashed its target, raising a whopping $7.2 billion in the summer of 2014.

Founder John Grayken, above, the firm’s sole owner, prefers to fly under the radar – though that hardly seems possible given the massive funds Lone Star raises or the size and complexity of the deals it works on. Many of its recent transactions have involved large non-performing loan portfolio purchases. One of its largest deals in 2015 was the £2.2 billion ($3.4 billion; €3 billion) purchase of Aviva’s Project Churchill, a portfolio of loans and real estate assets valued at around £2.4 billion. The package contained 1,021 loans made to offices, retail, industrial, car showrooms and care homes across the UK.

More recently, Lone Star and Neuberger Berman won Fannie Mae’s sixth auction of NPLs in the US. The two purchased 9,300 delinquent obligations with more than $1.5 billion in unpaid balances. Lone Star took home 4,537 loans with $746.4 million outstanding deals of the total.

This year, 59-year-old Grayken made Forbes’ billionaires list with a net worth of $6.3 billion, making him the second wealthiest private equity manager on that list, behind Blackstone’s Steve Schwarzman. Since the firm’s inception in 1995, its assets have ballooned to $64 billion, and the 15 funds it has managed reported an average annual net return of 20 percent.

Although distress, turn-around and special situations investing is the firm’s main bread and butter, Lone Star has lately made waves in other debt instruments. Antares Capital announced a unitranche lending JV with LStar Capital, Lone Star’s direct lending arm in January. The CPPIB-owned lender and LStar have since worked on a host of large lending deals together across a range of industries.

Bennett Goodman 180

2. Blackstone/GSO, $36.3bn (2015 rank: 6)

The US alternative investment firm has been a recurring visitor in the top 10 since this ranking’s launch in 2013. This year we added Blackstone’s real estate debt business to the GSO funds, which boosted the firm’s spot from sixth in 2015.

GSO is Blackstone’s dedicated corporate credit arm headed by founders Bennett Goodman, above, and Tripp Smith. The unit handles a variety of debt strategies, including mezzanine, direct lending, energy credit and distressed. Some of GSO’s notable fund closes in recent years included two large energy credit funds focused on liquid and illiquid credit and a dedicated €2.5 billion European senior debt fund. Although the capital in the energy credit funds is yet to see much deployment, GSO’s experienced energy team believes there is a lot of money to be made on an oil recovery in due time.

Also under the Blackstone roof is the firm’s real estate debt business, which targets mezzanine opportunities around the world and a variety of properties. The group, headed by Mike Nash, has been gathering large chunks of money quickly and posting strong returns. The firm recently closed its latest Blackstone Real Estate Debt III fund on $4.5 billion.

Howard Marks (180 x 200)

3. Oaktree Capital Management, $34.8bn (1)

Oaktree, arguably the best-known distressed debt manager in the business, has been switching between the number one and two spots with Lone Star for the past three years. This year, it falls behind Blackstone, which has muscled into the top two with its real estate business.

Although Oaktree has raised the biggest distressed fund around ($10 billion and counting), some of its older capital has rolled off this year’s rankings, including the seventh distressed fund that closed on $4.5 billion in 2010, a third mezzanine fund that gathered $1.6 billion the same year and a legacy CMBS fund that held about $2.3 billion. Oaktree has a strong brand and many investors think of founder Howard Marks as a thought leader on distressed investing and financial markets in general. The distressed funds continue to collect money with the Oaktree Opportunities Fund Xb being a $7 billion reserve pool of capital to be deployed at a later date when more fruitful distressed opportunities arise. In the meantime, Oaktree reported $22.8 billion in dry powder in its second quarter earnings report this year, a record for the Los Angeles-headquartered firm.

4. M&G Investments $29.3bn (3)

London-based M&G, also a regular in the top 10 for the past four years, manages both a large alternative credit business and a sizeable real estate debt fund unit. The firm invested £2.2 billion ($2.8 billion; €2.6 billion) in commercial real estate debt last year, after closing its second and third real estate debt funds on £1.35 billion in 2014. The real estate finance team, led by John Barakat, invested the money across a total of 24 transactions last year.

M&G collects co-investment and separate account money from large institutions for tailored real estate debt strategies as well. Some of this money comes from across the pond. US pensions in the latest real estate debt funds include the New Jersey Division of Investment, the Dallas Police & Fire Pension System, the Fort Worth Employees’ Retirement Fund and the Wyoming State Loan and Investment Board.

The £246 billion firm also handles direct lending, leveraged finance, infrastructure debt and private placements. Given the breadth of its credit strategies, the firm has been winning large mandates for multi-asset credit accounts from LPs.

Leon Black 180

5. Apollo Global Management, $27.5bn (2015 rank: 5)

Leon Black’s, above, firm is often referred to as an alternative asset manager or private equity firm, though the majority of its business ($134 billion of $186 billion) is actually in credit. When it comes to fundraising, the firm has been collecting a lot of money in large distressed funds, European credit and sector-focused strategies.

Apollo launched fundraising for its European Principal Finance III fund this year with a $3.5 billion target, the same amount that the second fund raised in 2012. In June, Apollo began marketing a successor to its Financial Credit Investment II fund, which gathered $1.5 billion in 2014. The FCI series targets debt investments in the financial services sector.

Outside of closed-end funds, Apollo has been collecting a lot of capital within its MidCap Financial subsidiary, a healthcare lender it acquired in 2014. Apollo also has a public business development company and sub-advises a non-traded one, both of which appear in the BDC rankings.

This year Apollo was granted exemptive relief from the Securities & Exchange Commission on its BDCs, which gives the firm permission to pool capital from the BDCs, as well as its private funds, to do debt deals.

6. AXA Investment Managers, $26.8bn (11)

The French insurer jumps up five spots on this year’s ranking. The firm has a large real estate debt investment business that handles its own insurance account money, as well as third-party capital via funds and separate accounts. AXA Investment Managers – Real Assets' most recent property fund closed on €2.9 billion, beating its €2.5 billion target, in August 2015. The vehicle targets pan-European commercial real estate debt.

At the time, AX IM – Real Assets also won a £350 million ($453 million; €407 million) separate account mandate from a UK pension fund for the same strategy bringing its total real estate debt assets to €13.1 billion. 

Over the past three years, the insurer has continued to collect large separate account and fund mandates from third-party institutions for senior debt origination and acquisition strategies.

7. HPS Investment Partners, $22.7bn (16)

This is a big year for HPS. The credit firm completed its long-anticipated spin-out from JPMorgan, rebranded as HPS Investment Partners (the original Highbridge Capital hedge fund that HPS was housed under stayed at the bank) and hit the ground running with several fundraising initiatives. HPS’s ranking goes up nine spots this year.

People familiar with the firm say it will continue to collect money quickly given its strong brand, good performance and sound reputation in the LP community. This year, the firm is well on its way toward its $5.5 billion target on its latest mezzanine fund. HPS also launched fundraising for its fourth HPS Specialty Loan Fund in the summer, with a $3.5 billion target. Its predecessor closed on $3 billion in 2013.

HPS has also raised a ton of money from US public pensions through separate accounts. The Arizona State Retirement System ploughed more than $1 billion into HPS for mezzanine, senior debt and real estate strategies in recent years. The South Carolina Retirement System also invested $400 million into a tailored multi-strategy credit account with HPS in 2015.

8. Goldman Sachs & Co Merchant Banking Division, $19.7bn  (2015 rank: 4)

The US bank’s mezzanine investment business raises the largest funds in the US dedicated to junior debt, an area that’s often “left for dead” by many industry experts – although Goldman and other large managers of mezzanine funds say they can still find opportunities in the large-cap market where few other players can compete. The firm also runs a series of large real estate credit funds called Broad Street under the Merchant Banking umbrella.

This year GS falls four spots as leverage has been taken out of the numbers we have previously reported. The firm’s sixth mezzanine fund amassed $8 billion in 2015, with$6.2 billion in LP equity and the rest in credit lines. The firm has been using its large capital base, including co-investment and separate account money to arrange some of the largest mezz deals around.

Towards the end of 2015, GS helped finance the $4.6 billion Petco Animal Supplies buyout with a $750 million loan. It also provided $580 million towards a $4.5 billion buyout of business software maker SolarWinds and stepped in with a $210 million loan when AEA Investors acquired 1-800-Contacts for $1.3 billion.

9. PGIM, $19.5bn (20)

Like AXA, Prudential’s investment management business handles its own insurance money and third-party separate accounts and funds. The firm’s US and European real estate debt funds used to be branded separately, but were both combined as PGIM Real Estate this year. The insurer’s corporate credit business, based in Chicago, operates as Prudential Capital.

While we only counted some of these divisions in prior rankings, this year we have combined them under one roof, which brings the firm up 11 spots from 2015. One of PGIM’s largest funds in the past five years was the Prudential Capital Partners V fund, a corporate credit fund focused on mezzanine, which gathered in $1.15 billion in 2012. The Pramerica Real Estate Capital IV collected $1.1 billion in 2013. Its fifth European real estate debt fund was a partnership with APG and focused on the Netherlands, so was smaller at $366 million.

Pru is now back on the road collecting £1 billion ($1.3 billion; €1.2 billion) for its sixth real estate debt fund, a pan-European strategy. The firm’s other large pools of debt capital include $8 billion in separate accounts focused on senior debt origination.

10. Ares Management, $19bn (22)

The Los Angeles-based alternative investment firm, which, like Apollo, has the majority of its assets in credit, formally combined its tradable credit and direct lending groups this year. Greg Margolies and Kipp deVeer now co-lead the credit group, which jumped from the number 22 spot last year.

In combining the two business, the$95.3 billon manager wanted to give clients the option of investing in broad separate accounts that can spread money across a variety of Ares’ credit strategies. These mandates can also be tailored on leverage, return expectations, specific industries and other preferences.

Ares, which handles $62.1 billion in credit, has already been collecting large sums of money for these types of accounts since before the official combination. Last year and through the first half of 2016 the firm collected almost $4 billion in these separate accounts. Ares also closed its Ares Capital Europe III fund, a direct lending vehicle, on €2.5 billion in June. Other noteworthy fundraisers over the last five years included the second ACE fund, the Ares Special Situations Fund IV and the Ares European Loan Opportunity Fund. The firm also runs the largest public BDC.