Updated with correction
Not all alternative debt is the same, a point illustrated in this year's survey of the largest money managers of U.S. institutional assets.
While assets invested in mezzanine debt increased more than a third in 2011 to $7.67 billion over the previous year, distressed debt assets fell 18% to $23.2 billion. Privately placed debt was up 8.3%, to just less than $48 billion.
(Collateralized debt obligations were down 40% but the year-end 2011 data are affected by the absence of a large money manager in the sector, Pinebridge Investments, which did not break out its assets under management by class.)
Investments that fall into the “real asset” category all were in positive growth territory, with infrastructure's year-over-year gain at more than 27%, to $6.8 billion. That increase, while strong, is a bit slower than the 33% growth in the previous survey. Meanwhile, real estate equity grew close to 8% and real estate investment trusts, nearly 6%, to $260.12 billion and $57.46 billion, respectively.
Still, not all alternative investment managers fared well, showing slow or no growth during calendar-year 2011. Venture capital assets, at $16.34 billion, grew only 1.5% from a 5% growth spurt in the year-earlier survey; private equity assets dropped 1% to $46.7 billion; and timber was down 9%, at $15.42 billion. Net assets in hedge funds dropped close to 8%, to $101.38 billion.
Pensions & Investments' annual survey of the largest money managers is based on assets managed for U.S. institutional tax-exempt investors for the 12 months ended Dec. 31.
Mezzanine managers have been active in the past two years because of the absence of traditional lenders for companies and real estate deals.
“2010 was a great year to invest in mezzanine; 2011 was good,” said Richard Mack, CEO, North America, of New York-based real estate investment firm AREA Property Partners. “With fewer and fewer players offering credit, we were paid disproportionately for the risk we were taking on. There is still a lot of need for capital to restructure and pay down over leveraged deals.”
The spreads of mezzanine debt came in a bit, which is part of what has increased the value of the mezzanine debt the firm originated in 2010, Mr. Mack said.
AREA is ranked fourth in P&I's list of mezzanine managers, with $512 million managed in the asset class for U.S. institutional tax-exempt clients at year-end 2011. That figure is up 47.5% from what AREA reported a year earlier.
TCW Group, Los Angeles, maintained its top position among mezzanine managers with assets increasing to 90.8% to $4.2 billion. Executives at TCW Group declined to be interviewed for this article. Los Angeles-based debt manager Oaktree Capital Management LP maintained its second-place position even though the firm's mezzanine assets under management fell 22% to $1.1 billion.
Oaktree was at the top of the list among distressed debt managers, reporting $10.17 billion. That figure is down 24% from a year earlier. Oaktree executives could not be interviewed by deadline, said Tricia Ross, Oaktree spokeswoman, in an e-mail.
“You see historically that distressed debt and mezzanine move in different directions,” said Warren Woo, partner at Chicago-based debt manager Monroe Capital LLC and managing director of the firm's $250 million credit fund, Monroe Capital Partners Fund LP. “If one is going up, the other is going down.”
The distressed debt investment opportunity was more of a 2008 and 2009 investment phenomenon, said Mr. Woo. “Mezzanine is deeper in the capital structure for an improving economy and improving company performance, whereas distressed debt is perceived as an investment opportunity when things are tough,” Mr. Woo said.