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Brookfield Asset Management is in advanced talks to buy a majority stake in private credit manager Castlelake for $22 billion, as the world's second-largest alternative investment manager uses acquisitions to push further into lending and debt investments that benefit from rising interest rates.
The deal under discussion would see Brookfield invest more than $1.5 billion to buy a majority stake in Castelec and make a significant investment in its funds, three people familiar with the matter told the Financial Times. Brookfield and Casselec declined to comment.
Castlelake, based in Minneapolis, is a specialty lender focused on aircraft leasing, providing financing to major airlines including United Airlines and Turkish Airlines collateralized by their aircraft.
These types of asset-backed debt have become highly sought after in the private capital industry, where major managers such as Brookfield, Apollo Global and KKR manage insurance-based investment assets, generating lucrative, fixed fees. Many companies are now securing their own debt deals, lending either directly to companies or against a pool of assets.
The talks between Brookfield and Casellek, which are at a late stage but could still collapse, come on the heels of consolidation in the credit markets. Some of the largest private equity and asset management groups — including TPG, BlackRock, T Rowe Price and CVC Capital Partners — have acquired credit managers as they look to diversify their assets.
Castlelake will sit on Brookfield's recently formed credit unit, which also includes a controlling stake in Oaktree Capital Management.
Oaktree, the credit investment firm co-founded by Howard Marks and Bruce Karsh, has been on a fundraising campaign as it looks to compete with larger rivals. He has increased his lending to private equity firms, helping finance leveraged buyouts, as he sought to capitalize on rising volatility on Wall Street.
Other institutional investors within Brookfield's credit group include European credit management firm LCM Partners, a stake in music royalty group Primary Wave, and a technology-focused lender called Pinegrove, in which it recently invested $250 million alongside Sequoia Heritage.
Castlelake has taken advantage of recent market turmoil to expand its credit portfolio beyond aircraft leases, purchasing billions of dollars in consumer installment loans from fintech group Upstart.
The asset management company, founded in 2005 by graduates of Cargill's alternative investment unit and later rebranded as CarVal, has become a major lender to the airline industry. The company says it owns, finances or leases more than 200 aircraft, and counts Delta, Avianca and Qatar Airways among the lessees.
It is expected that Castlelake's management team will retain a majority of the carried interests generated by the company and will operate independently from Brookfield. But the Canadian investment manager worth more than $900 billion is likely to pump more capital into its funds, just as it is doing with Oaktree.
The growing interest in credit markets has prompted other asset managers to explore their options. Kennedy Lewis, a $14 billion credit firm, last week agreed to sell a significant stake to Bettershell Partners, the private equity arm of Goldman Sachs Asset Management.
