Asset managers generally face the question of whether to build investment capabilities from scratch or buy a firm that already has the expertise.
But the answer appears to be fairly clear in private credit: buying a boutique manager is far more expeditious than trying to grow one organically, according to industry experts.
“Let’s be honest, traditional managers have had a hard time competing against specialists,” said Richard Bruyere, managing partner of Indefi, an asset management consultant. “Most of them have typically launched private credit activities in house, but they’re more tilted toward the senior side of the business and less toward the direct lending, higher octane businesses.”
To tap into those “higher octane” businesses, managers, including BlackRock, PGIM, and Nuveen, have all acquired boutique private credit firms in recent years. And just last week, Manulife Investment Management acquired CQS’s credit platform and First Sentier Investors finalized its majority stake in European alternative credit manager AlbaCore Capital Group.
The benefits of these deals are two-fold. They offer traditional managers and their clients immediate access to certain credit markets. This is key. According to Kevin Gallagher, a principal at Casey Quirk, a huge chunk of the lending business is no longer available to investors in the public bond markets. Investors who are concerned they are missing these exposures recognize the need to play in both public and private credit.
“They worry that they’ll miss out on a huge chunk of the market,” Gallagher said.
Deals with larger managers also offer those boutique credit managers the ability to get more sales through a larger firms’ well resourced distribution networks. “Scaleability is a competitive edge. If you’re a private credit manager with $5 to $10 billion, to get to the next step is challenging,” Bruyere said.
CQS sits just above that range, with approximately $13.5 billion in assets. But a lot of that money is tied up on one continent.
“From our perspective, we’re one of the oldest credit managers here in the U.K. and Europe,” said Soraya Chabarek, CEO of CQS. “We have a pretty large footprint in this region.”
Manulife, meanwhile, has major distribution networks in North America and Asia. The firm also has its hooks in the retail and wealth management market, which Paul Lorentz, president and CEO of Manulife Investment Management, believes is an area ripe for credit products.
“It gives us another engine for growth,” Lorentz said. “It gives a great platform for CQS to scale.”
The success of these deals has a lot to do with how they’re structured post-acquisition. According to Gallagher, allowing the acquired private credit firm to operate more independently is beneficial for a number of reasons, including sales. Corporate and private credit operate on different sales cycles, and each needs its own distribution team and strategy.
But that doesn’t mean there can’t be collaboration. What will come next, according to Bruyere, is a build-out of products that mix illiquid and liquid credit strategies. Appropriate for wealth management clients and smaller limited partners, these new offerings will help managers extend their reach in the private credit market.
Chabarek highlighted this as one of the benefits of the deal with Manulife. “It was a natural fit in terms of how Manulife operates its investment management teams, which is autonomously,” she said. “Clients like to think that there’s continuity.”
