February 11, 2016
A team of credit veterans led by ex-Highland Capital Management Partner Patrick Daugherty and Portfolio Manager Kevin Rourke is planning a unique fund which will have the ability to provide third-party risk retention financing to US CLOs. Daugherty and Rourke’s new firm, Glacier Lake Capital Advisors, is aiming to provide risk retention funding by way of a modified capitalized manager vehicle (CMV) structure, a solution developed with law firm Clifford Chance.
No firm has yet issued a risk retention fund of this kind in the US, where most CLO managers are focused on developing structures which invest in their own CLOs. Glacier Lake believes that approaching the process as an independent firm offers advantages. “A lot of risk retention solutions are hamstrung from the beginning because the manager is having to protect a legacy CLO management platform,” notes Daugherty. “By coming in fresh we can set up a solution that is true to both the letter and spirit of the law. That means giving our investors more control, more transparency and, to be frank, more of a share in the CLO management fees.”
Another notable difference with other retention funds is that Glacier Lake intends retention funding to be only part of its strategy. The same vehicle that provides retention funding will also invest in secondary CLO paper and stressed and distressed leveraged loans. Daugherty explains the unusual mix as a different approach to CLO investing; “Investors are no longer solely interested in who gives them the highest cash-on-cash CLO equity distributions. They are scared to death of the CLO positions that they are already in, and are looking for complete cycle solutions now.”
Given the state of the primary CLO market it isn’t clear when Glacier Lake will begin marketing a deal, but they are said to have commitments from three existing CLO managers who would act as sub advisors on new CLOs. Dallas-based Glacier Lake declines to comment on the size of its fund, but according to market sources it is thought to be aiming for $200 million.