CLO manager readying for launch
Not yet a year old, Sycamore Tree Capital Partners is aiming high. The firm intends to become a significant player in CLO management, with the belief that the experience and character of its team are more important than its age.
“Mark Okada, Jack Yang and I launched Sycamore Tree officially in November 2020, as a boutique private and alternative credit focused asset management firm,” recalls Trey Parker, the firm’s co-founder and cio. “We began with an opportunistic traded credit strategy, primarily bank loans and CLO debt, and we are now launching our CLO issuance and management business, which is obviously very complimentary from a strategy and team perspective.”
Further down the line, perhaps in a year or two, Sycamore Tree plans to add a special situations and/or private capital strategy business to further complement its offering. But for now, the focus is firmly on CLO management, after an initial nine- to 12-month period of putting in place a strong infrastructure and systems and bringing together an experienced team. ”
The firm is now up to 17 people, including an 11-person investment team focused on the bank loan and CLO markets,” Parker says. “All have quite a bit of tenure and experience – the average experience of the investment team is 18 years and the average experience of just the analyst team is a robust 13 years.”
He continues: “We’ve made a deep commitment to the CLO issuance and management business from a personnel, infrastructure and resource perspective, which will enable us to scale. Part and parcel of bringing in highly experienced people, who not only have relevance in CLO management, but also great relationships within the CLO market – should enable us to be successful in achieving our goal – to consistently and programmatically issue CLOs into the US BSL market and build a successful CLO platform with committed, long-term capital.”
The latest such hire and perhaps the most significant is that of Paul Travers as an md, portfolio manager and member of the firm’s investment committee (SCI 9 September). Travers was previously a loan and CLO portfolio manager and investment committee member at Onex Credit Partners, where he led the company’s launch and buildout of its US CLO platform.
Despite, or perhaps because of, his 38 years’ experience in the CLO space, Travers’ enthusiasm for his new role is palpable. “My initial conversations with Sycamore Tree came at a time when I was weighing up whether or not to return to the CLO market; so if I was going to, it needed to be both meaningful and enjoyable,” he says.
As it turned out, this was a very good fit, Travers explains. “Meeting the team here, the quality of people, their commitment to excellence and as importantly their character -this is a business of trust and I wanted to deal with people who would just exude that -was what attracted me most. One of the things we’re committed to, alongside being really good at what we do and providing alpha, is being as transparent and as open as any manager in our business. I think that counts for a lot and is underestimated in terms of how important that can be – we don’t like surprises in our investment portfolio and we don’t intend to surprise our investors, and that can only be done through transparency.”
In addition, Travers says: “I’m going to be a partner in this firm and that’s really, really, important to me. I’m more than an employee; I’m going to have a real say here with my partners – Mark, Trey and Jack – in making sure that everything we do is done in the right manner.”
The feeling is clearly mutual. “The investment lens we look through is very similar to Paul’s history and outlook on the market,” Parker says. “The focus is on high quality deals, limited use of risk buckets and incorporating defensive positions – the nature of CLOs is to be opportunistic during periods of rising market volatility and we want to always be prepared for future volatility.”
That volatility is for now largely absent from a market that Travers believes is ideally positioned to support his firm’s ambitions. “The CLO market is cyclical, like every other business. But what the market is telling us right now is that it is in a really good place -US$18bn of CLOs issued in August, the largest month ever, with US$114bn year to date and virtually every research desk predicting a record year. That tells you the assets and liabilities are lining up and that doesn’t always happen.”
He continues: “Thinking about the asset side, you’ve got a strong economy, which should translate into low defaults. You’ve got a very strong M&A pipeline, which means we should have lots and lots of deals to look at – and we really like that because it allows us to be very selective. When there’s only a few deals in the market, you almost feel compelled to do some percentage of them; when there’s a lot, you can be that much more selective, so that’s really helpful.”
On the other side, Travers adds: “As an industry, we continue to see new entrants at triple-A through equity and we continue to see those who are already invested in the space giving greater and greater allocation. And that provides the liabilities we need to raise the next CLO.”
One potential challenge for Sycamore Tree is the need for a manager to be able to show a credible track record. However, Travers says: “While some will see our name and think we’re new, I believe we can demonstrate we’re anything but new – sure it’s a new name on the door, but we have an abundance of experience. And having some captive equity is also really important – it’s easy to raise capital in a good environment like today, but when it gets tough and you have that capital, you may be able to take advantage of a market when others can’t.”
So, as Parker concludes, the next step for the firm is clear. “We’ve got the investment team in place to be able to manage the deals; we have a very robust investment process that’s been functioning since the beginning of the year, in terms of idea generation and building high quality, risk appropriate portfolios to showcase to the market the type of investment style we will utilise. We have committed capital that we can use to issue deals and so we’re going to get to work.”
This article was published by Structured Credit Investor on 22 September 2021.