An awakening market for collateralized loan obligation equity funds – a risky but potentially lucrative way to invest in bundles of corporate loans – is driving new capital to Sawtelle-based alternative investment firm Crescent Capital Group.
Investors committed $232 million to Crescent’s second CLO equity fund, the firm announced Aug. 27. That’s more than double the amount raised for the firm’s first such fund, which closed in 2018. The $53-billion asset manager, wholly owned by Toronto-based life insurer Sun Life Financial Inc., has run a CLO platform since 1993.
The most recently closed fund, Crescent CLO Equity Funding II, attracted institutional investors, including pension funds and insurance companies, hoping to cash in on leftover income once CLO managers collect interest and pay off more senior investors. As a captive fund, it’ll invest primarily in the equity of CLOs managed by Crescent itself.
“Despite a competitive fundraising environment, this close reflects the continued evolution of our CLO issuance strategy and the growing conviction we are seeing from investors across the institutional landscape,” said Nilesh Mandhare, a managing director at Crescent who oversees the firm’s CLO issuance strategy, in a statement.
CLO market recovery
The close comes as the CLO market recovers after years of slumped activity due to tight arbitrage, or a narrow gap between the income loans bring in and the cost of financing them. Despite lingering pressures, nearly $230 million in CLOs were issued in the U.S. in this year’s first half, more than the total $200 million issued in all of 2024, according to business law firm Dechert.
“The skies are clearing, but slowly, and anyone who has raised a CLO equity fund in the last 18 months knows better than to leave the umbrella at home,” a Dechert market analysis says.
Alongside Crescent’s announcement, several major second-quarter closes from market bigwigs heralded improving conditions and a return of institutional capital to the CLO space. These included Bain Capital’s $1.5 billion captive CLO equity fund and CVC Credit’s $1 billion vehicle, both of which closed in April.
