17 November, 2009
UPDATE 2-Aladdin Capital buys Solent CDO business
* Largest European CDO manager consolidation
* Investors push for more solid investment platforms
(Adds background, quotes)
By Alex Chambers
LONDON, Nov 17 (Reuters) - Aladdin Capital, a U.S.-headquartered boutique investment bank, has bought the structured credit business of European specialist credit management firm Solent Capital, the bank said on Tuesday.
The acquisition includes nine synthetic collateralised debt obligations (CDO) managed by Solent Capital, which was one of the largest synthetic CDO credit businesses in Europe.
"There has been a huge amount of talk about CDO consolidation but despite the talk there have been very few announced deals," said Neal Neilinger, chief investment officer at Aladdin Capital.
Smaller CDO managers have come under pressure as large investors have scaled back their involvement, a serious serious setback for certain firms such as Solent which set themselves up as specialist managers during the credit boom.
Solent was one of a coterie of specialist credit managers established in Europe during the past decade.
It was formed by Jonathan Laredo, Raymond O'Leary and Tim Gledhill in 2003, and created a number of innovative and complex synthetic CDO instruments.
Synthetic CDOs were an important subset of the collateralised debt obligation sector. They are portfolios of credit default swaps (CDS), in effect, bets on the likelihood that companies will not default.
FEES DECLINE
Laredo ran structured finance at JP Morgan in Europe between 2000 and 2003. Assets under management at Solent fell by 30 percent in 2008, according to Fitch Ratings. A further blow to smaller managers has been the fallout from the problems in the CDOs that they managed.
The fees associated with being a CDO manager have declined dramatically following changes in rating agencies' methodologies.
With assets under management in decline and fees from CDO management falling, Solent needed to attract fresh money but did not have the scale to compete, or convince enough possible investors, analysts said.
Laredo said that despite pretty good performance in 2008 his firm had not been attracting new capital.
"Ever since the onset of the credit crunch, investors have stopped looking at performance and started looking at the solidity of the platform instead. That made us decide to look to partner with someone that could raise capital in the current environment," said Laredo.
Solent is not alone in its predicament. Others have branched out into credit portfolio advisory work for bank and other investors.
SURVIVAL ROUTE
Another route for survival has been to merge with other managers. Babson Capital recently bought a unit of Jefferies Capital that manages five collateralised loan obligations.
"We are currently talking to other potential candidates. There will be more activity in this space," said Neilinger.
Aladdin Capital has expanded dramatically over the past 18 months. It was originally one of the largest players in the alternative investment sector in the United States, but has since reinvented itself as a boutique investment bank.
This year it has been able to raise significant amount of new hedge fund money for a debtor-in-possession fund and for the U.S. TALF government-sponsored scheme to support asset-backed financing.
(Editing by David Cowell)
Source: http://www.reuters.com
UPDATE 2-Aladdin Capital buys Solent CDO business Added: (17.11.2009)
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