3i Group, Expanding In Credit, Eyes U.S.

  • British shop buys $3.1B of Invesco CLOs
  • Diversifying into additional asset classes
  • Looking for managers and portfolios

The British buyout shop 3i Group plc, another private equity player making a move into credit markets, plans to establish an American lending presence during this calendar year, most likely by buying a U.S. CLO manager.

“The U.S. is clearly of strategic importance to us. It is the deepest of the capital markets,” Jeremy Ghose, managing partner and CEO of 3i Debt Management, told Buyouts after the firm announced a major expansion of its European loan portfolio, although he would not identify any acquisition candidates. “We are continuing to look at acquiring platforms and managers both in Europe and the United States.”

3i Group announced May 31 that it had agreed to buy seven European collateralized loan obligation management contracts from the U.S. asset manager Invesco. Ghose called the Invesco CLO assets “one of the last sizable portfolios in Europe.” The £2 billion ($3.1 billion) of assets under management will swell 3i Group’s CLO business by 50 percent, to £6 billion, when the deal closes in two to three months.

“This is very much the sort of path 3i decided to take two or three years ago,” he said.

3i Group began its push into credit with its February 2011 acquisition of Mizuho Investment Management, the debt management specialist unit of Mizuho Corporate Bank, to boost its presence in the European loan market. That deal established 3i Group as a player in the credit markets, with assets under management of £3.7 billion.

By bulking up on credit, 3i Group is following a strategy that already is being pursued by a number of publicly traded U.S. private equity firms, Ghose said, mentioning Apollo Global Management LP, The Blackstone Group LP, The Carlyle Group and Kohlberg Kravis Roberts & Co.

“Because of its dependence on the private equity side, the stock has been valued more on a NAV basis,” Ghose said of the publicly traded 3i Group. “They are being valued by the market on an EBIT multiple basis.”

And now is an opportune time to invest in credit. Ghose estimated that CLO issuance this year would reach $25 billion to $30 billion in the United States alone, compared to $11 billion last year. “The CLO market as we know it is very much open,” he said. “We would very much like to take advantage of that market opportunity.”