TCW Buys Craton Equity to Expand Alternatives UnitAlexis Leondis
TCW Group Inc., the $128 billion asset manager bought by Carlyle Group LP in February, is expanding its alternative offerings under new head Jess Ravich with the purchase of Craton Equity Partners. Terms of the transaction weren’t disclosed.
TCW acquired Beverly Hills, California-based Craton Equity Partners, a private-equity firm with $242 million in assets that specializes in socially responsible investing, the firm said today in a statement. In December, Los Angeles-based TCW agreed to acquire direct-lending debt funds with about $2 billion in assets from Regiment Capital Advisors LP and partnered with Scoggin Capital Management to oversee distressed and event-driven hedge funds.
TCW, which has two-thirds of its assets in U.S. fixed income, is seeking to diversify its holdings amid speculation that the 30-year bond bull market is coming to an end and investors prepare for an increase in interest rates. TCW is rebuilding its alternative assets under Carlyle Group after two units specializing in non-traditional investments split off from the firm in 2011, when it was owned by French bank Societe Generale SA.
“Bonds have been the flavor of the month for over a decade and now with interest rates poised to go higher, one has to ask are fixed-income funds going to be in as much of a demand as they were,” TCW Chief Executive Officer David Lippman, 54, said in a telephone interview.
TCW was started in 1971 by Robert Day, the grandson of Superior Oil Co. founder William Keck, as Trust Company of the West. The firm has been through leadership changes and executive departures since December 2009, when it fired star manager Jeffrey Gundlach, a move that prompted the exodus of more than 40 professionals, who eventually joined Gundlach’s new firm. Lippman was previously CEO of Metropolitan West Asset Management, which was acquired by TCW at the time of Gundlach’s dismissal.
Crescent Capital Group LP, the leveraged-finance group co-run by Mark Attanasio, separated from TCW more than two years ago, as did Blair Thomas’s energy private-equity firm EIG Global Energy Partners LLC. Ravich joined TCW at the end of last year from investment bank Houlihan Lokey, where he was head of capital markets.
TCW has 66 percent of its assets in U.S. fixed income, 17 percent in U.S. equities, 10 percent in international and global strategies and 7 percent in alternative investments as of June 30. Bill Gross’s Pacific Investment Management Co., which has more than 90 percent of its $1.97 trillion in assets in bond-related strategies, has been adding alternative funds, exchange-traded funds and equity products for at least the last five years.
Investors have been pulling money out of traditional bond funds as yields have shrunk. TCW’s flagship fund, the $24.7 billion Metropolitan West Total Return Bond Fund, had $519 million in net redemptions in the three months ended Aug. 31, based on estimates from Morningstar Inc. The fund returned 5.5 percent over the past three years, putting it ahead of 93 percent of peers, and lost 0.2 percent this year, beating 88 percent of rivals, according to data compiled by Bloomberg.
“Our clients want to have more money with fewer managers and a supermarket of alternatives to invest in,” Ravich, 56, said in a telephone interview. “We would become potentially not as relevant with our client base if we didn’t have them.”
Craton invests in growing companies whose products and services help improve the environment, such as those involved in water treatment, reducing carbon emissions and increasing energy efficiency. It typically invests in firms that have low capital requirements and operate independent of tax credits and government subsidies. Bob MacDonald and Tom Soto, Craton’s managing partners, will become managing directors at TCW/Craton and managing partner Kevin Wall will become a senior adviser, according to TCW’s statement.
Ravich said he’d ideally like to add about five new strategies a year. Health-care funds and direct lending in Europe are potential areas TCW may look to expand in, Ravich said. The firm had about $8.5 billion in alternative assets as of June 30.