Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • Consultants
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2023
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
September 16, 2013 01:00 AM

Credit is next frontier for strategic accounts

Investors like the lower fees, flexibility and greater transparency these vehicles offer

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More

    Updated with correction

    Large institutional investors' movement into strategic accounts has reached credit strategies.

    Investors now are shopping for managers for such accounts in search of lower fees, flexibility to make tactical investments and more say on investment strategies.

    The accounts — called strategic accounts by some and separately managed accounts by others —in essence are single relationships in which investors commit large amounts of capital — typically between $100 million and $1 billion — to a single manager, giving that manager discretion among various investment strategies. Investors like the accounts because they provide lower fees, more control and greater transparency. It also allows the managers to move quickly in and out of opportunistic investments.

    Credit and debt strategies are a growing portion of institutional investors' alternative investment portfolios. Some 42% of private equity investors have exposure to private debt strategies, and another 18% of private equity investors without exposure to private debt are considering adding private debt in the near future, according to a recent survey by London-based research firm Preqin.

    In May, the Oregon Investment Council, Tigard, which runs the $63 billion Oregon Public Employees Retirement Fund, Salem, committed $250 million to New York-based alternative investment manager The Blackstone Group LP for its first strategic account. Blackstone's mandate includes opportunistic investments and investments with high current cash yield, which can include non-performing debt.

    The council expects its strategic account with Blackstone will give it “greater and timelier access to attractive, opportunistic investments that OPERF might otherwise miss,” according to materials for the May 1 meeting. The agenda materials also noted the council will be paying lower-than-typical management fees on committed and invested capital and lower-than-market incentive fees from Blackstone.

    Blackstone has about $3.5 billion in separately managed accounts in what it calls its tactical opportunities business that includes credit strategies. In the quarter ended June 30, Blackstone raised $805.1 million, mostly in managed accounts, according Peter Rose, Blackstone spokesman in an e-mailed response to questions. The managed accounts of Blackstone's credit subsidiary, GSO, are separate from those in tactical opportunities. Blackstone does not break out how much GSO manages in separate accounts.

    “In the last 12 to 24 months, we've seen a dramatic increase in demand for strategic portfolios or separate accounts. This trend is being driven by the largest investors in the world, primarily public pension plans and sovereign wealth funds, which have large amounts of capital to allocate. Smaller institutions, like endowments and foundations, normally don't have the scale to create such accounts,” said Beth Chartoff, senior managing director for New York-based GSO Capital Partners LP, Blackstone Group's credit arm, in an interview.

    “In particular, we have found institutions are trying to be more nimble, flexible and opportunistic with their capital, particularly in these volatile, rapidly changing markets,” Ms. Chartoff said. “Public pension funds often have long board approval processes and stringent asset allocation models that don't afford the ability to invest quickly in unique and non-traditional asset classes.”

    Ares' new business

    In the last 12 months, Ares Management has gotten about six mandates for separately managed accounts, said Tony Ressler, co-founder and senior partner of Los Angeles-based Ares Management. Most recently, in July, Alleghany Corp. committed up to $1 billion with Ares in a separately managed account when it took a minority stake in the firm.

    “Considering that institutional investors have between 40% and 80% of their capital in fixed income, there is no doubt that a core obsession for them is to find ways to create double or triple the returns of investment grade credit that are currently yielding zero to 3% without double or triple the risk,” Mr. Ressler said.

    This is especially true for investors that are nervous about the volatility of the global equity markets, he said.

    “So, these investors must do something different, and they like separately managed accounts where they have us allocate among our asset classes in order to target returns between a 6% and 12% rate of return without lockups or gates,” Mr. Ressler said in an interview.

    Managers love separately managed accounts because they give them discretion to invest large chunks of capital across the credit spectrum, even mixing liquid and illiquid strategies in a single portfolio. Ares Management, Crescent Capital Group LP, Blackstone Group, Apollo Global Management LLC, Goldman Sachs Asset Management, Sankaty Advisors and Babson Capital Management LLC have all won such accounts in the past 12 months.

    In its two-year existence, Los Angeles-based Crescent Capital Group has signed three clients to strategic accounts. New allocations to separately managed accounts that allow Crescent executives to allocate to the firm's commingled funds, total $2 billion. The firm has total assets under management of $13 billion.

    Investors can really customize the structure of the program and assets they want, said Mark Attanasio, co-founder and managing partner of Crescent Capital Group. ”Investors in these accounts can invest in up to 10 of Crescent's strategies, so investors don't have to move their capital around between managers or strategies,” he added.

    “A trend is starting,” said Jeff Hawkins, managing director and chief operating officer of Boston-based Sankaty. “We have heard more chatter about these kinds of accounts.”

    Mr. Hawkins said Sankaty has between 10 and 12 strategic relationships. He declined to say exactly how many strategic account relationships Sankaty manages or a total dollar amount.

    But these accounts have changed since the firm first started offering them in 2008.

    “Every one of Sankaty's strategic accounts has morphed over time,” Mr. Hawkins said.

    First they were loan-only portfolios, then they changed into loans and bonds, with a mix of liquid and illiquid assets, he said.

    “We are seeing a broad switch in our accounts away from fixed to floating-rate securities, with more leveraged loans and floating rate in response to rising rates we saw in May, June and July,” Mr. Hawkins said. “We see a breakdown between liquid and less liquid investments.”

    Plus, investors are moving past relationships in which their main decision was which investment fund to select.

    “Now everything is a dialogue,” he said. “The world where money managers would send (investors) a form letter every quarter is gone. It's really important to have true partnerships with investors.”

    Increased interest

    Overall, interest in credit is on the rise. For instance, the $2.3 billion Louisiana Sheriffs' Pension & Relief Fund, Baton Rouge, is expected to hire its first opportunistic credit manager in October to manage roughly $30 million. The $20.8 billion Texas County & District Retirement System, Austin, has $350 million invested in opportunistic credit, with the most recent investment an additional $50 million to a credit strategy managed by Canyon Capital Advisors for the pension fund. This brought Canyon's residential mortgage-backed securities' mandate to about $390 million.

    “We certainly see some level of interest in that (separately managed accounts) among investors,” said John Fraser, managing partner of 3i Group PLC's debt management unit.

    But a majority of investors are still focused on investing in subsegments of the debt asset class.

    Related Articles
    GoldenTree's hiring spree part of client shift toward credit
    Wayne County Employees commits to 2 private debt funds
    Credit managers continue to predict rising defaults and wider spreads
    Illinois Teachers gives fixed income a face-lift
    Louisiana Sheriffs ropes BlackRock, Grosvenor Capital for credit
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    CITs Poised to Shine Across the DC Stage
    Sponsored Content: CITs Poised to Shine Across the DC Stage
    Sponsored
    White Papers
    What a Fed pivot and ‘higher for longer’ mean for emerging markets
    A Guide to Home Equity Investments: The Untapped Real Estate Asset Class
    How to Modernize a School District Retirement Plan
    Q4 2023 Credit Outlook: Price Is What You Pay, Value Is What You Get
    There's More Than One Way to Be a Climate Investor
    Exploring the Commercial Application of Artificial Intelligence
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • Consultants
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2023
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print