With its eye on the booming European leveraged loan market, Aladdin Capital Management has joined the growing community of U.S. CLO managers setting up shop on the other side of the Atlantic. The firm took a key step toward creating a London-based operation by announcing last Wednesday its hire of leveraged loan market veteran Peter Allan as senior managing director to start the new business.
As the European loan market has grown and developed over the past few years, a number of major players in the U.S. CLO market have extended their operations into Europe. For example, Babson Capital Management and Highland Capital Management have both entered Europe in order to capitalize on loan investment opportunities.
And now, Aladdin is ready to do the same. "We figured that the time was right," explained George Marshman, a principal at Aladdin. "We have an operation in the US that is large enough and successful enough that we could support a move into Europe. It's a reasonably substantial undertaking - it's not something we thought was appropriate to do on a shoestring."
Marshman also noted that the market for institutional loans in Europe is attractive because it is not nearly as saturated as in the U.S. "The European market is still somewhat less developed than the US market is, especially in terms of institutional participation," Marshman said. "I think there is room for a firm like ours to get things done and be successful."
Aladdin, which was established in 1999 and currently manages $3.1 billion in leveraged loan assets among eight CLOs, a floating-rate fund, a portable alpha bank loan account and a separate account, expects its first European investment vehicle to be a CLO, Marshman said. The firm has retained Bear Stearns as its placement agent for its first CLO (the investment bank has arranged about $1.6 billion in assets for the firm in the U.S.).
Allan, who will be spearheading Aladdin's foray into the European CLO business, most recently worked for NIB Capital Bank. As head of acquisition finance at NIB for the last five years, he had a senior role in originating assets for NIB's CLOs. He has also worked in the leveraged finance group at The Royal Bank of Scotland.
Aladdin plans to have its European shop open for business in May, Marshman said. In addition to hiring Allan, the firm plans to hire at least five more employees in the near term, and Aladdin will likely increase its staff as its assets under management grow, he said.
Given that leverage ratios in Europe have continued to climb as the market has grown and leveraged buyout activity has remained strong, Marshman acknowledged that the European leveraged loan market is "a riskier place than it was a couple of years ago."
"But the trend is still very favorable," he said. "It is much more segregated, both geographically and in terms of market participants - you don't have a situation where few banks have the dominant market share. And clearly, institutional participation in the European market is growing."
After Aladdin gets its European CLO business off the ground, it eventually plans to manage other types of leveraged loan funds, such as separate accounts and hedge funds, Marshman said. The firm is also leaving the door open to possibly expanding into other asset classes such as asset-backed securities and high yield bonds.
"The firm here has other operations on the credit side away from loans," Marshman noted. "But at the moment, we're really leading with the loan group. Having a good plan is one thing, but execution is critical. Right now, all eyes are on the loan operation."
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