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Castlelake targets $750m for dislocation vehicle

The vehicle will start out in the liquid market but transition to the illiquid market over time.

Castlelake launched a $750 million top-off vehicle to its fifth flagship fund, specifically focused on opportunities provided by the coronavirus crisis.

According to documents from Teachers’ Retirement System of Louisiana‘s July 31 investment committee meeting, Castlelake V Dislocated Opportunities LP was launched to invest in “asset rich, cash-flow generating opportunities that have developed due to forced or motivated sellers or capital needs” as a result of the covid market dislocation.

“[Castlelake] intends to invest in downside protected assets that have the potential for upside as the market normalizes,” said a presentation from consultant Hamilton Lane. The new vehicle will start out with a focus on the dislocation in the “liquid segment” of the market but shift into illiquid markets over time.

The vehicle will make 30 to 50 investments between $15 million and $30 million with an expected hold of up to three years. It will have a global scope and work across diversified industries. The firm will also remain focused on its existing strategies, which include aviation assets and diversified assets in both the US and Europe.

Castlelake V closed in 2017 on $2.4 billion. As of March 31, it had a 1.2x total value to capital paid in multiple and an 11 percent internal rate of return, placing it in the first quartile. As of March 31, it had drawn $1.6 billion of its capital.

Castlelake was founded in 2005 by Rory O’Neill and Evan Carruthers as TPG Credit Management. Originally, it was a joint venture with TPG Capital, but in 2013 the firm bought out TPG’s minority stake and re-branded as Castlelake. In a 2013 interview with Buyouts, O’Neill said TPG never had any governance rights over Castlelake.

The firm has expertise in “aircraft asset ownership, financing and servicing.” It has $16.5 billion in assets under management, with $6.4 billion of that in distressed debt.

Besides the firm’s five flagship vehicles, it has also launched six industry-specific vertical funds and six aircraft asset-backed security debt vehicles. 

The performance of the firm’s flagship funds have improved over time. Its first fund, a 2006 vintage, has a 1.4x TVPI and a 4.8 percent net IRR, placing it in the third quartile. Fund II has a 2011 vintage, a 1.3x TVPI and a 5.8 percent net IRR, also placing it in the third quartile.

Performance improved from there. Fund III has a 2013 vintage, 1.4x TVPI and 7.4 percent net IRR, moving up to the second quartile. Fund IV has a 2015 vintage, a 1.3x TVPI and a 9.1 percent net IRR, putting it in the first quartile along with Fund V.

Castlelake did not respond to a request for comment for this story. Louisiana Teachers committed $50 million to the fund. Last year, it committed $75 million to a separate Castlelake fund, as Buyouts reported

Action Item: read Castlelake’s form ADV here.