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Brookfield Asset Management is in advanced talks to buy a majority stake in $22bn private credit manager Castlelake as the world’s second-largest alternative investment manager uses acquisitions to push further into lending and debt investments that are benefiting from higher interest rates.
The deal under discussion would see Brookfield invest more than $1.5bn to buy a majority interest in Castlelake and make a large investment in its funds, three people briefed on the matter told the Financial Times. Brookfield and Castlelake declined to comment.
Minneapolis-based Castlelake is a specialist lender with a focus on aircraft leasing, providing financing for large airlines including United Airlines and Turkish Airlines that is secured against their planes.
These types of asset-backed debts have become hotly coveted in the private capital industry as large managers such as Brookfield, Apollo Global and KKR manage insurance-based investment assets, generating lucrative and consistent fees. Many of the businesses now underwrite their own debt deals, lending either directly to companies or against a host of assets.
The talks between Brookfield and Castlelake, which are in a late stage but could still fall apart, come on the heels of consolidation in credit markets. Some of the biggest private equity and asset management groups — including TPG, BlackRock, T Rowe Price and CVC Capital Partners — have recently acquired credit managers as they look to diversify their assets.
Castlelake would sit in Brookfield’s recently formed credit unit, which also houses a controlling interest in Oaktree Capital Management.
Oaktree, the credit investor co-founded by Howard Marks and Bruce Karsh, has been on a fundraising push as it looks to compete with larger rivals. It has increased its lending to private equity firms, helping finance their leveraged buyouts, as it has sought to take advantage of rising volatility on Wall Street.
Other investment outfits inside Brookfield’s credit group include European credit manager LCM Partners, a stake in music royalty group Primary Wave, and a technology-focused lender called Pinegrove, in which it recently invested $250mn alongside Sequoia Heritage.
Castlelake has taken advantage of recent market turmoil to expand its credit portfolio beyond aircraft leases, buying up billions of dollars of consumer instalment loans from fintech group Upstart.
The asset manager, founded in 2005 by alumni of an alternative investment unit of Cargill that was later rebranded as CarVal, has become a big lender to the airline industry. The firm says it owns, finances or leases more than 200 aircraft, and counts Delta, Avianca and Qatar Airways as lessees.
Castlelake’s management team is expected to retain the majority of the carried interest the firm generates and it will operate independently from Brookfield. But the $900bn-plus Canadian-investment manager is likely to inject further capital into its funds, just as it does with Oaktree.
The elevated interest in credit markets has other asset managers exploring their options. Kennedy Lewis, a $14bn credit firm, last week agreed to sell a significant stake to Petershill Partners, the private equity investment arm of Goldman Sachs Asset Management.
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