Targeting a growing sector of the credit market, Barclays Capital’s fund management arm, Barclays Capital Asset Management, is unveiling three new collateralized debt obligation funds (CDOs), two focusing on the European market and one on the U.S.
The launches are hot on the heels of recent offerings such as mid-market private equity firm Duke Street Capital’s EURO750 million Duchess I Fund, boasted as the largest in Europe, and Capital Dynamics’ Prime Edge, a EURO150 million cross between a traditional high-yield CDO and a private equity fund-of-funds (Buyouts June 18, p. 1).
Barclays Capital launched its first fund of this kind last October. Managed by David Forbes-Nixon, the EURO500 million Blue Eagle CDO1, is focused predominantly on European high-yield assets, which at the time of its launch were doing well with a market that had traded down and with assets being bought at attractive levels. In response to volatility in the market, the second fund, which is as yet unnamed, will target the European leveraged loan market, rather than high-yield bonds. It has a planned launch for October.
A third European CDO fund is planned to launch in March or April next year. Elliot Asarnow, global head of research at the bank, said, “The composition of the third fund we will determine as the date draws near.”
He adds that target size of each fund will depend on market conditions, but considers between EURO400 million and EURO500 million an attractive size.
With a team that has been steadily expanding since the beginning of this year, the ongoing strategy is to launch similar funds on a regular basis and with its two recent hires, Faith Bartlett and Kevin Lennon from the rating agency Fitch, the firm is confident that it can handle the level of activity it is about to take on.
With regards to securing allocations for the fund, Asarnow says that he does not think it will be easy, but said it will not be a struggle either.
When asked if the bank had any plans to put together such a fund for a private equity house, Asarnow replied, “We haven’t been asked to do anything like that, although we would welcome discussions.”
He added that in terms of an investor base for a CDO fund, the firm regards private equity houses as an attractive option.
CDO funds have tranches that each provide a different level of risk, appealing to a range of investors with different investment objectives. The trend of raising these has caught on recently.
“The CDO product has become prominent in the last four to five years or so. What we will see in Europe is more activity on the CDO management side in addition to the already active buying of securities issued by CDOs. Progress will mirror what has happened in the U.S. with more institutional loan fund investors,” said Asarnow.
For its U.S. fund, which is scheduled to be up and running by year end, the team again has a target of EURO400 million, but Asarnow said there are hopes to increase this figure. Four leveraged finance professionals have been hired who were previously at Citigroup in New York in the firm’s alternative investment division. Hans Christensen is heading the team along with Martin Davey, Michael Reagan and Maria Cruz, who will be managing transactions.