Private equity giant Carlyle Group Inc. has been named investment manager for a publicly-traded fund that is pivoting away from investments in residential mortgages and will focus on the riskiest tranches of collateralized loan obligations instead.
(Bloomberg) — Private equity giant Carlyle Group Inc. has been named investment manager for a publicly-traded fund that is pivoting away from investments in residential mortgages and will focus on the riskiest tranches of collateralized loan obligations instead.
Carlyle will own a roughly 40% stake in the closed-end Vertical Capital Income Fund, which is being rebranded to the Carlyle Credit Income Fund as of July 18 and will start trading under the ticker CCIF on the New York Stock Exchange on July 27, according to a statement seen by Bloomberg. Carlyle Global Credit Investment Management will act as the fund’s investment adviser, replacing Oakline Advisors, after receiving shareholder approvals at a June 15 meeting, the statement reads.
Since its inception in 2011, the Vertical Capital Income Fund has managed a portfolio that generates investment returns almost entirely from first mortgage residential loans. Earlier this month, the fund announced that it had sold the majority of its portfolio to a pair of bidders following a competitive sale process. Now, it plans to use the proceeds to invest in the equity and junior debt tranches of CLOs, which bundle leveraged loans into securities of varying risk and size.
The equity portion of CLOs is typically considered the riskiest and highest-yielding part of the CLO structure as it’s the first to absorb losses. CCIF will initially buy CLO equity from other managers in the secondary market, according to a Carlyle spokesperson, as returns on the equity tranche of new CLOs remain slim this year.
The rebranded fund will be a way for Carlyle, the second largest CLO manager globally, to bring more retail investors into CLOs.
“This is part of the democratization of alternative credit,” Lauren Basmadjian, newly appointed Chief Executive Officer of CCIF, who is also co-head of liquid credit and head of US loans and structured credit at Carlyle’s global credit platform, said in an interview. “By investing in CLO equity, we will aim to deliver double digit yields to retail investors.”
Nishil Mehta, a managing director leading Carlyle’s structured credit investments, will act as portfolio manager for CCIF, according to Carlyle’s spokesperson.
Carlyle has committed $40 million of equity to CCIF, split between a tender offer launching July 18 to acquire up to $25 million of CCIF shares, and an investment in CCIF of at least $15 million in newly issued shares and private share purchases, the statement reads.
Carlyle also made a one-time payment to CCIF shareholders of $10 million, or about 96 cents per share, on July 14.
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