(Bloomberg) -- Investcorp Credit Management is holding acquisition talks with a number of credit firms as the alternative asset manager looks to expand its U.S. footprint and grow its collateralized loan obligation business.
The potential purchase is part of a plan to become one of the top global CLO shops by assets under management, according to David Moffitt, co-head of U.S. credit management at Investcorp.
“We are looking at firms between $3 billion to $10 billion in AUM,” Moffitt said. “We are in active discussions with a number of multi-asset credit platforms that have CLO” operations.
CLOs, which purchase leveraged loans and repackage them into bonds of varying risk and return, have been on a tear this year, with assets breaching $1 trillion globally for the first time last month. Investcorp is also seeking to build out its roughly $5 billion U.S. CLO business via $1 billion to $1.5 billion of annual organic growth, targeting assets of roughly $10 billion in a few years, Moffitt said. Any acquisition could feasibly take that amount to $15 billion, he added.
To support its aspirations, the U.S. outfit is looking to hire two or three credit analysts, Moffitt said. The plan is to bring on one new analyst for every two deals that Investcorp does going forward, and one senior portfolio manager for every three deals.
Demand for CLOs, which carry ratings as high as AAA and typically pay more than government bonds or similarly-rated corporate debt, is booming amid an unprecedented era of low rates. CLOs also pay floating rates, offering protection against resurgent inflation.
Investcorp already manages around $10 billion in European CLOs. It’s rare for managers to have a larger presence in the $200 billion European CLO market than in the U.S., where there’s more than $800 billion of assets. Investcorp established its European CLO business first, however, and is now seeking to replicate that success stateside.
The firm is also in negotiations to bolster the capital it has available to facilitate new CLO issuance, said Moffitt, who joined Investcorp last year from LibreMax, where he headed tactical investment opportunities and CLO management.
“We are in active discussions with a number of potential capital partners who can allow us to further leverage our balance sheet and other pools of capital in growing the CLO platform,” Moffitt said.
The CLO expansion plans underpin aspirations to grow in other segments of credit as well.
Investcorp is working on setting up a credit risk transfer business, which are tools used by systemically important banks to manage their regulatory capital by shifting the risk of unfunded high-yield revolvers to another party. Investcorp hopes to execute one or two such deals by year-end, Moffitt said.
Additionally, the firms is trying to get a CLO trading business up and running by the first quarter of 2022, further develop its direct-lending unit, and is also exploring distressed-debt investing.
“What we’re trying to build is a multifaceted asset-management platform in the credit space,” Moffitt said. “We have to get the credit business right in the U.S. since it is the biggest credit market in the world, and supports our growth plans as a significant global player.”
(Updates with details on negotiations with capital providers, further expansion efforts beginning in eighth paragraph.)
©2021 Bloomberg L.P.