By Svea Herbst-Bayliss
NEW YORK (Reuters) - Hedge fund Brigade Capital is receiving a $300 million investment from Blackstone (NYSE:BX) to help build its new private credit strategy and expand its collateralized loan obligations (CLO) platform, two people familiar with the matter said.
Brigade, an established credit investment specialist that made headlines earlier this year with a joint bid for department store Macy's (NYSE:M), is building expertise in the hot private credit market where some $2 trillion in loans are being made to corporations by non-banks.
The Multi-Asset Investing unit of Blackstone will allocate $150 million to the new Brigade strategy. Brigade raised some $500 million this year for the strategy and plans to focus on opportunities in the lower middle market, where companies generate between $10 million and $50 million in earnings before interest, taxes, depreciation and amortization, one of the sources said.
Blackstone and Brigade representatives declined to comment.
The allocation comes from the unit's Strategic Alliance Fund IV which is run by David Ben-Ur and has over $1 billion in assets. Brigade is the third manager being seeded in Fund IV. Previously Blackstone seeded London-based Astaris Capital Management through the fund.
Brigade is an established manager with some $28 billion in assets and is expanding in the private credit market.
In total, Brigade has raised some $1.5 billion to build out its private credit platform, including commitments for future funds, one of the sources said.
The lower middle market is full of lending opportunities with higher spreads and yields because there is less competition. Some examples of lower middle market borrowers include vacation rental company Awayday and mattress and bedding retailer Saatva.
Brigade's efforts in private credit began in earnest when it poached Jenny Lee from JPMorgan Chase (NYSE:JPM) and Jim Wolf from Whitehorse Capital two years ago to spearhead the strategy. Their strong networks and years of experience are expected to help source smaller deals that are often tougher to find, one of the sources said.
Blackstone is also allocating $150 million to support Brigade's existing CLO business with dedicated equity commitments for new CLOs globally. The capital is coming from the Multi-Asset Investing unit's Absolute Return platform, which is also run by Ben-Ur. The Brigade CLO business currently has some $11 billion in assets across 25 deals in the U.S. and Europe.
CLOs offer a diversified exposure to the broadly syndicated loan market and CLO equity is structured to take advantage of volatility in the loan market given non-mark-to-market leverage and term financing.