At Pretium’s 2024 Investor Symposium in New York City, investors, economists, housing experts and others joined the Pretium leadership team in discussing key trends shaping the investment landscape, opportunities for investors in residential real estate and beyond, and the outlook for allocating capital in 2025. Read key takeaways or watch highlights from the Symposium here:
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Stephen M. Scherr Joins Pretium as Co-President To Partner with Jonathan Pruzan in Driving Next Phase of Firm’s Growth
PRESS RELEASE
Stephen M. Scherr Joins Pretium as Co-President To Partner with Jonathan Pruzan in Driving Next Phase of Firm’s Growth
October 7, 2024
NEW YORK, October 7, 2024 /PRNewswire/ –- Pretium, a specialized investment firm with more than $55 billion in assets under management, today announced the appointment of Stephen M. Scherr as Co-President, effective immediately. In this role, Scherr will work in partnership with Co-President Jonathan Pruzan in overseeing Pretium’s strategic and operational initiatives. Scherr is also joining the firm’s Executive Committee and Board of Directors.
“I am thrilled to welcome Stephen to Pretium,” said Founder and CEO Don Mullen. “Having known Stephen for more than 25 years, both as a colleague at Goldman Sachs and as a friend, I appreciate his deep intellect and integrity, and his exceptional ability to drive commercial results. Stephen’s expertise in running businesses in financial services and consumer-facing sectors will be a tremendous asset to Pretium as we leverage our distinctive position as both an investment firm and operator of complex, vertically integrated businesses.”
“I am delighted to be joined by Stephen, a friend and colleague of over 20 years,” said Mr. Pruzan. “Stephen and I worked together when we were CFOs and although we have many shared experiences, we will bring different perspectives and insights to drive the next phase of Pretium’s growth. Stephen will be a great partner as we continue to capitalize on the enormous opportunities ahead.”
Scherr brings over 30 years of experience leading high-performing teams, including nearly three decades at Goldman Sachs, where he served as Chief Financial Officer from 2018 through 2021. During his tenure at Goldman Sachs, he led several of the firm’s most important businesses and initiatives while serving as Chief Strategy Officer and as a long-standing member of the firm’s Management Committee. Stephen joins Pretium after two years as Chair and CEO of the Hertz Corporation.
“I have admired the success of Pretium since its founding in 2012, and I cannot think of a place that brings a more dynamic, forward-thinking approach to investing capital,” said Mr. Scherr. “Don has built an exceptional business and the opportunities to extend the Pretium platform are considerable. I look forward to leveraging my expertise across a diverse range of businesses and partnering with Jon Pruzan, whom I have known personally and professionally for decades, to scale Pretium’s platform and explore new avenues for strategic growth.”
“Stephen and Jon will be a formidable pairing to lead Pretium with me,” Mullen added. “In a little more than a year, Jon has already put his signature on the firm by advancing our strategic partnerships and driving growth. The combination of these two talented leaders signals an extraordinary moment in the evolution of Pretium as we take advantage of outstanding opportunities to grow and to serve our clients.”
Scherr holds a J.D. from Harvard Law School and an A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University. He also serves on the boards of the Jewish Museum and the New York Stem Cell Foundation and is a member of the Council on Foreign Relations.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $55 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contact
Liz Bowyer
(929) 626-5552
media@pretium.com
“I am thrilled to welcome Stephen to Pretium,” said Founder and CEO Don Mullen. “Having known Stephen for more than 25 years, both as a colleague at Goldman Sachs and as a friend, I appreciate his deep intellect and integrity, and his exceptional ability to drive commercial results. Stephen’s expertise in running businesses in financial services and consumer-facing sectors will be a tremendous asset to Pretium as we leverage our distinctive position as both an investment firm and operator of complex, vertically integrated businesses.”
“I am delighted to be joined by Stephen, a friend and colleague of over 20 years,” said Mr. Pruzan. “Stephen and I worked together when we were CFOs and although we have many shared experiences, we will bring different perspectives and insights to drive the next phase of Pretium’s growth. Stephen will be a great partner as we continue to capitalize on the enormous opportunities ahead.”
Scherr brings over 30 years of experience leading high-performing teams, including nearly three decades at Goldman Sachs, where he served as Chief Financial Officer from 2018 through 2021. During his tenure at Goldman Sachs, he led several of the firm’s most important businesses and initiatives while serving as Chief Strategy Officer and as a long-standing member of the firm’s Management Committee. Stephen joins Pretium after two years as Chair and CEO of the Hertz Corporation.
“I have admired the success of Pretium since its founding in 2012, and I cannot think of a place that brings a more dynamic, forward-thinking approach to investing capital,” said Mr. Scherr. “Don has built an exceptional business and the opportunities to extend the Pretium platform are considerable. I look forward to leveraging my expertise across a diverse range of businesses and partnering with Jon Pruzan, whom I have known personally and professionally for decades, to scale Pretium’s platform and explore new avenues for strategic growth.”
“Stephen and Jon will be a formidable pairing to lead Pretium with me,” Mullen added. “In a little more than a year, Jon has already put his signature on the firm by advancing our strategic partnerships and driving growth. The combination of these two talented leaders signals an extraordinary moment in the evolution of Pretium as we take advantage of outstanding opportunities to grow and to serve our clients.”
Scherr holds a J.D. from Harvard Law School and an A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University. He also serves on the boards of the Jewish Museum and the New York Stem Cell Foundation and is a member of the Council on Foreign Relations.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $55 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contact
Liz Bowyer
(929) 626-5552
media@pretium.com
Mark Hudspeth Joins Pretium as Senior Managing Director to Lead Capital Markets
PRESS RELEASE
Mark Hudspeth Joins Pretium as Senior Managing Director to Lead Capital Markets
September 16, 2024
NEW YORK, September 16, 2024 – Pretium, a specialized investment firm with over $55 billion in assets under management, today announced the addition of Mark Hudspeth as Senior Managing Director, Head of Capital Markets. In this role, Mr. Hudspeth will be responsible for overseeing capital markets for the firm and working with Pretium leaders to chart the next phase of the firm’s strategic growth. He will also be a member of the firm’s Executive Committee.
Mr. Hudspeth is a seasoned leader with a strong track record of performance in capital markets and real estate finance. He joins Pretium from Blackstone Real Estate, where he was a Managing Director from 2021-2024 and served as Head of U.S. Capital Markets. Prior to Blackstone, he served as an Executive Vice President and Head of Capital Markets at Vornado Realty Trust. In addition, Mr. Hudspeth spent 15 years at Morgan Stanley as Managing Director and Head of Investment Finance, responsible for all financings, hedging, insurance and investment level tax matters for the Merchant Banking and Real Estate Investing Divisions. He also served as Head of Capital Markets for the U.S Real Estate Investing Division and on numerous investment committees.
“Mark’s addition to our senior leadership team demonstrates Pretium’s continued growth and momentum as a leading alternative investment firm,” said Jonathan Pruzan, President of Pretium. “With the breadth and depth of his experience at the intersection of capital markets and real estate finance, Mark will play an essential role as we pursue opportunities that will shape the next phase of Pretium’s evolution and drive value for our investors.”
Mr. Hudspeth said, “I am excited to join Pretium at a time of strategic growth. The firm has built an innovative, integrated platform in residential real estate, and I look forward to leveraging my experience in capital markets and real estate finance to contribute to the firm’s success.”
Mr. Hudspeth graduated from Trinity College with a Bachelor of Arts in Political Science.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $55 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contacts
Kate Thompson / Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
media@pretium.com
Brendan Bosman and Karen Kulvin Join Pretium as Managing Directors to Expand Real Estate Debt Strategy
PRESS RELEASE
Brendan Bosman and Karen Kulvin Join Pretium as Managing Directors to Expand Real Estate Debt Strategy
September 4, 2024
NEW YORK, September 4, 2024 – Pretium, a specialized investment firm with over $55 billion in assets under management, today announced the additions of Brendan Bosman and Karen Kulvin as Managing Directors to bolster the firm’s Real Estate Debt strategy. Mr. Bosman and Ms. Kulvin both bring decades of experience in real estate finance and will strengthen Pretium’s investment team as the firm continues to expand its impact in the residential financing ecosystem.
Mr. Bosman joins Pretium from Värde Partners, where he served as Senior Managing Director and head of US housing investing, closing transactions worth over $8 billion across the capital structure. In his more than 15 years at Värde, Mr. Bosman worked on a variety of real estate property types and structures, with a particular focus on financing homebuilders and residential developers. Ms. Kulvin joined Pretium from Kayne Anderson Real Estate, where she was a Senior Managing Director and co-head of the Real Estate Debt platform. During her 10 years at Kayne Anderson, she sourced, underwrote, and managed over $10 billion of securities and loan origination transactions. Previously, she served as a founding partner and portfolio manager at Aqua Investment Management.
Mr. Bosman will be a leader of the firm’s investment activities in homebuilder finance, expanding on the $14 billion in loans already originated through Pretium companies. Ms. Kulvin will oversee initiatives in multifamily residential finance, building on the platform launched by Pretium’s acquisition of BH Management Services earlier this year.
“We are excited to welcome Brendan and Karen to Pretium as we expand our offerings in residential real estate finance,” said Jonathan Pruzan, President of Pretium. “Growing demand for homes, coupled with persistent housing shortages in key markets across the U.S., means that real estate debt financing will be essential to increasing housing supply in the years ahead. Brendan and Karen’s experience and leadership will be instrumental to Pretium’s efforts in this area.”
“The slowdown in lending stemming from disruptions in the regional banking system has created significant consequences for homebuilders and other housing market participants,” added Josh Pristaw, Head of Real Estate at Pretium. “We are helping to fill the void by providing innovative and reliable financing solutions to homebuilders and multifamily developers alike. Brendan and Karen’s expertise will help us further scale those offerings.”
Mr. Bosman said, “I am excited to contribute to Pretium’s already impressive track record in homebuilder finance. This is a pivotal moment in the market, and I look forward to helping Pretium continue its leadership in this space.”
Ms. Kulvin said, “I am thrilled to bring my decades of experience in real estate finance to Pretium as the company scales its efforts in real estate debt, and continues to create value for homebuilders, investors and communities.”
Mr. Bosman graduated from Macalester College in Minnesota with a B.A. in Economics. Ms. Kulvin graduated from Tufts University with a B.A. in American Studies and the Questrom School of Business, Boston University with an MBA in Accounting.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $55 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contacts
Kate Thompson / Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
media@pretium.com
Liz Bowyer Joins Pretium as Senior Managing Director to Lead Corporate Affairs
PRESS RELEASE
Liz Bowyer Joins Pretium as Senior Managing Director to Lead Corporate Affairs
July 24, 2024
NEW YORK – July 24, 2024 – Pretium, a specialized investment firm with more than $50 billion in assets under management, today announced the addition of Liz Bowyer as a Senior Managing Director to lead Corporate Affairs, overseeing external communications, content strategy, and corporate impact. Ms. Bowyer will be a member of the firm’s Executive Committee.
Ms. Bowyer has three decades of experience leading initiatives aimed at deepening engagement and driving impact across a range of stakeholders in finance, law, politics, and consumer groups. Ms. Bowyer joins Pretium from Hertz, where she served as Executive Vice President of Corporate Affairs. From 2014 to 2021, she was a Managing Director at Goldman Sachs, overseeing the company’s brand and content strategy. Earlier in her career, Ms. Bowyer was a television producer for NBC and ABC News, a speechwriter and researcher at the White House, and an attorney at Boies Schiller Flexner practicing complex civil litigation.
“Over the course of her career, Liz has demonstrated her ability to connect with core stakeholder groups through creativity and cross-disciplined thinking,” said Jonathan Pruzan, President of Pretium. “Liz has an excellent track record in communications, politics, and law and is an exciting addition to our team as we continue building one of the leading platforms for real estate and credit investment.”
“I’m thrilled to join the fantastic team at Pretium,” said Ms. Bowyer. “With a specialized focus on delivering value to investors, residents, and communities, Pretium is creating meaningful opportunities for growth and sustainability across the residential real estate ecosystem and beyond. I look forward to contributing to that important work in this next phase of Pretium’s evolution.”
Ms. Bowyer earned a Juris Doctor from Columbia Law School and a Bachelor of Arts in History from the University of Florida.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $50 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contacts
Kate Thompson / Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
Media-SFR@pretium.com
Pretium Raises $1.5 Billion with Sixth Single-Family Housing Fund, Exceeding Target
PRESS RELEASE
Pretium Raises $1.5 Billion with Sixth Single-Family Housing Fund, Exceeding Target
July 22, 2024
Fund Invests in Build-to-Rent Homes and Communities, Creating New Housing Supply
NEW YORK – July 22, 2024 – Pretium, a specialized investment firm with over $50 billion in assets under management, today announced the successful close of its sixth single-family housing fund and related vehicles, above target with $1.5 billion in aggregate commitments to create more affordable housing in the U.S. The fund received strong support from a diversified group of existing and new investors, including insurance companies, U.S. pension plans, and U.S. wealth managers.
The fund invests in build-to-rent single-family homes and communities in suburban markets experiencing above average population and economic growth. The growth in these key markets is primarily driven by U.S. demographic trends fueling demand in regions that offer warmer weather and lower cost of living.
“We are pleased to close our sixth single-family housing fund above our target, which is a testament to the strength of our platform and provides us with more capital to keep builders building homes for families,” said Don Mullen, Founder and CEO of Pretium. “This fund invests in growing the stock of quality single-family homes in key markets across the country, helping solve for the tremendous shortage of viable housing in the U.S. Pretium has developed an integrated real estate ecosystem with the scale and expertise to capitalize on shifts in the market and expand access to quality housing that is resonating with investors, residents, and our communities.”
“As a pioneering investor in the single-family housing industry, Pretium has a strong track record of driving performance and value creation by delivering access, optionality, and value to renters,” said Josh Pristaw, Pretium’s Head of Real Estate. “We have seen a meaningful opportunity to put capital to work with our homebuilder partners over the last few years as regional banks have pulled back on financing and a high inflationary environment depresses supply. Investing in new housing supply and empowering builders to build more homes for families is a winning proposition in a market challenged by housing shortages.”
Since 2020, Pretium has invested more than $2.62 billion toward new build-to-rent construction in the U.S., creating more than 7,800 new homes across 37 cities and 15 states.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has more than $50 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs approximately 7,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contacts
Kate Thompson / Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
Media-SFR@pretium.com
Pretium Completes Acquisition of BH Management Services
PRESS RELEASE
Pretium Completes Acquisition of BH Management Services
May 1, 2024
NEW YORK – May 1, 2024 – Pretium, a specialized investment firm with over $50 billion in assets under management, today announced that it has completed its acquisition of BH Management Services (“BH”), one of the nation’s premier property management platforms in multifamily, student, and single-family housing.
The addition of BH to Pretium creates one of the most robust residential ecosystems in the United States, with more than 7,200 employees, over 210,000 homes managed, and approximately 700,000 residents and homeowners served annually. Pretium’s portfolio now includes investments spanning single-family, multifamily, student, affordable, and build-to-rent housing communities.
“The addition of BH enhances Pretium’s residential ecosystem, enabling us to deploy capital across all major residential asset classes in both debt and equity,” said Jonathan Pruzan, President of Pretium. “This transaction creates additional opportunities for our investors and will drive more investment in residential real estate, contributing to a healthier housing economy and increased housing options for families across the country.”
“Combining BH’s multifamily portfolio with Pretium’s residential platform will help us execute on our shared vision to build better communities,” said Joanna Zabriskie, CEO of BH. “As an operating company of Pretium, the BH team is positioned to sustain and grow our leadership in multifamily and deliver on our important mission of creating spaces where people live and thrive.”
As a Pretium operating company, BH will continue to be led by Chief Executive Officer Joanna Zabriskie and the current management team, with its headquarters remaining in Des Moines, Iowa.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has over $50 billion of assets, comprising real estate investments across nearly 90 markets in the U.S., and employs more than 7,200 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
About BH Management Services
BH is a people-first multifamily owner and operator that grew from a small startup into one of the nation’s largest commercial real estate companies. Founded in 1993, BH is celebrated for its simple commitment to doing business the right way and investing in its team. Today, BH manages approximately 114,000 units, employs 2,800 people, and owns its processes in-house. Powered by innovation and a can-do attitude, BH improves daily, striving to construct a smarter way to live, invest, manage, and grow. For more information, visit livebh.com.
Contacts
Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449
Media-SFR@pretium.com
Pretium Highlights Sustainability Efforts in Third Annual Impact Report
PRESS RELEASE
Pretium Highlights Sustainability Efforts in Third Annual Impact Report
April 29, 2024
Pretium Highlights Sustainability Efforts in Third Annual Impact Report
NEW YORK, April 29, 2024 – Pretium, a specialized investment firm with over $50 billion in assets under management, today published its 2023 Impact Report. The report details the firm’s sustainability milestones in 2023 and targets for 2024.
“Our impact initiatives are designed to strengthen the communities in which we operate, supporting residents on their paths to wealth building, fostering community prosperity, addressing the housing shortage, and promoting an inclusive culture across our ecosystem,” said Tatiana Gutierrez, Head of Corporate Impact at Pretium. “We are proud to celebrate our success to date and remain committed to furthering our efforts to build a truly sustainable business for the future.”
Notable achievements in the report include:
- Financing $1.65 billion of loans to create and preserve housing across the country.
- Originating more than 3,000 homeowner mortgage loans, including 17% for first time home buyers.
- Launching Solar Homes and more than 500 Energy Saver Homes across the US.
- Equipping 12,000 homes with Smart Home technology to reach 63,000 homes, 70% of the portfolio.
- Increasing Housing Choice Voucher families served by 74% to more than 2,250 families in partnership with more than 120 local housing agencies.
- Facilitating positive rent reporting for more than 185,000 residents, including first-time credit scores for nearly 8,000 previously credit invisible individuals.
- Submitting the first United Nations Principles for Responsible Investing (UNPRI) report for the Firm and its largest investment strategies.
- Increasing scores to the Global Real Estate Sustainability Benchmark (GRESB) for the Firm’s two largest real estate funds.
The full report can be viewed and downloaded on the Firm’s website at Pretium’s Third Annual Impact Report.
About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has over $50 billion of assets, comprising real estate investments across 30 markets in the U.S., and employs more than 4,000 people across 50 offices, including its New York headquarters, Miami, London, Seoul, and Sydney. Please visit www.pretium.com for additional information.
Contacts
Lyle Weston / Erik Carlson
Joele Frank,
Wilkinson Brimmer Katcher
212-355-4449
Media-SFR@pretium.com
Pretium’s Third Annual Impact Report
We build for longevity in our investment strategies and across the markets in which we operate.
Sound, sustainable investment principles inform our long-term objectives and create enduring value for our investors, our employees, and the families, businesses, and communities our investments touch.
Learn more in our third annual report on Pretium’s impact and sustainability efforts.
The Strategic Case for CLO Equity
CLO equity provides a unique format to invest in high-yield corporate loans
Collateralized loan obligations are investment vehicles that securitize a diversified portfolio of senior secured corporate loans – sometimes referred to as leveraged loans – and then distribute the loan portfolio’s cashflows to a range of end investors. The equity tranche of a CLO transaction is entitled to all of the principal and interest payments made by the underlying loan portfolio, net of interest and principal payments distributed to the CLO debt securities senior to the equity tranche. Thus, a key attribute of CLO equity, as it relates to the priority of payments received, is that CLO equity receives regular periodic payments representing the excess interest generated by the difference between the loan portfolio income and the CLO debt security cost, on a current basis.
The senior secured, high-yield corporate loans that back CLO transactions have historically been attractive assets to own, as their spreads have remained well above the loans’ realized credit losses. Exhibit 1 below shows that leveraged loan spreads have averaged 5% (500bp) over the past 25 years while leveraged loan losses have averaged only 1% (100bp) over the same period, highlighting the potential for the loans to generate positive long-run excess returns.
CLO equity is, in turn, a particularly unique format through which to gain exposure to high-yield corporate loans. The CLO structure – as shown, e.g., in the Appendix of this report – provides non-recourse, non-mark-to-market term leverage, which enhances the baseline yields of the loans themselves, without incurring risks of margin calls which may occur when using more traditional forms of leverage such as repo financing. Additional positive features of the CLO equity asset class include multiple embedded options, such as the option to refinance senior CLO debt when conditions are favorable and the option to actively manage the underlying CLO loan portfolio through asset sales and purchases, and limited interest rate risk exposure due to the floating-rate nature of the CLO assets and liabilities.
The beneficial features of CLO equity listed above have helped the sector to generate high and consistent quarterly cashflow distributions over time. Exhibit 2 above shows that CLO equity cash-on-cash returns have historically averaged 16.9%, annualized, when expressed as a percentage of the equity tranche par value; when these cash distributions are expressed as a percentage of acquisition value (purchase price), they further increase, as new issue equity is typically issued at a discount to par and seasoned secondary market equity often trades at a significant discount to par. As an example, if the equity tranches are acquired in the secondary market at a $90 price, as is often feasible, then the average annual cash-on-cash return as a percentage of purchase price becomes 18.5%; if the tranche acquisition price is $75, then the cash-on-cash return becomes 22.5% annualized.
Notably, the distributions to CLO equity usually begin on the first payment date and continue on a quarterly basis over the life of the investment, as is shown in Exhibit 3 for a hypothetical equity tranche. The resulting cash flow profile compares favorably to traditional private equity investments, which commonly exhibit a “J-curve” profile in which the investment delivers negative returns/no cash flow in the initial years of the transaction, hopefully to be offset by positive returns and return of capital in later years as the investment matures, as per Exhibit 4.
Growth of U.S. CLO market allows equity investors to allocate selectively
The U.S. CLO asset class has expanded to over $1 trillion of securities outstanding, from less than $500 billion in 2017, making CLOs now the largest securitized credit asset class in the U.S. (Exhibit 5). The growth of the CLO market is in large part a consequence of the sector’s historic success in delivering solid returns to investors through multiple cycles including the global financial crisis and COVID-19, while providing a dependable source of financing to a large and growing segment of corporate borrowers. The growth of the CLO market has led to improved trading liquidity for the asset class (e.g., per Exhibit 6) and makes it possible for active CLO equity investors to focus upon specific sub-segments of the market in order to target particularly compelling risk-reward profiles while still remaining discriminating in terms of security selection. For example, as market volatility and price dislocation increased in 2022 and 2023, Pretium adjusted its allocation strategy by overweighting secondary vs. primary market CLO equity positions and by overweighting CLO equity tranches backed by relatively defensive, lower risk loan portfolios. To the extent price dislocation moderates in 2024 and financing markets continue to become more accommodative, Pretium would expect to become more active in new issue markets again in order to lock in favorable debt terms which would benefit new issue CLO equity.
Conclusion: CLO equity is an attractive alternative for asset allocators looking to diversify their private credit exposure
CLO equity tranches have the potential to generate double digit returns over the long term while generating high current cash flow. The sector offers insulation from an uncertain future for interest rates and the large market footprint allows active investors to generate excess returns through tactical asset selection. Pretium believes the risk/reward characteristics of CLO equity to be a complementary component to any private credit allocation strategy today.
Appendix: Sample CLO Transaction Structure
CLO transaction structures distribute the principal plus interest cashflows from a pool of ~200 senior secured corporate loans to a range of equity and debt tranches.
Jerry Ouderkirk – Senior Managing Director, Head of Structured Credit
Jerry Ouderkirk is a Senior Managing Director and Head of Structured Credit at Pretium, where he has overall responsibility for the Firm’s corporate credit platform. In addition to overseeing and expanding the Firm’s CLO platform, Mr. Ouderkirk is building out numerous investing businesses across structured credit including Structured Corporate Credit.
Mr. Ouderkirk joined Pretium in 2017 with 20 years of experience building and committing capital around structured credit products and platforms. Prior to joining Pretium, Mr. Ouderkirk was a Partner at Goldman Sachs, where he started the Institutional Lending Group for Goldman Sachs Bank USA which oversaw the Firm’s discretionary lending and investing in the bank. He previously served as Global Co-Head of Structured Credit Trading, where he oversaw multiple capital committing businesses and started Goldman’s CLO Trading business, which he ran for more than 12 years.
Mr. Ouderkirk is a member of the Firm’s Executive Committee. He received a BA with honors in English and Economics from Colgate University. Mr. Ouderkirk serves on the Board of CitySquash in New York.
Confidentiality and Other Important Disclosures
This confidential presentation was prepared exclusively by Pretium for the benefit and internal use of the party to whom it is directly addressed and delivered (the “Recipient”). None of the materials, nor any content, may be altered in any way, transmitted to, copied, reproduced or distributed in any format in whole or in part to any other party without the prior express written consent of Pretium. As used in this presentation, “Pretium” refers to Pretium Partners, LLC and/or its affiliates.
Pretium’s Credit investment strategies are focused on corporate credit, structured products collateralized by corporate credit, distressed debt and equity and legal opportunities financing. The team invests in broadly syndicated loans, debt and equity of public and private companies, as well as securities issued by CLOs. Investments in high yield securities are subject to greater risk of loss of principal and interest than higher-rated securities and are generally considered to be predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Investments in distressed situations expose the investor to the difficulty in obtaining information as to the issuer’s true condition; legal risk, including laws relating to fraudulent conveyances, voidable preferences, lender liability, and bankruptcy; litigation risk; and liquidity risk. In addition, accounts will not be diversified among a wide range of types of securities, industry, markets, or countries. Litigation finance depends on whether the cases in which the fund invests will be successful, will pay the targeted returns and will pay those returns in the anticipated time. Assessing the values, strengths and weaknesses of a case is complex and the outcome is not certain. Should cases, claims, defenses or disputes in which the fund invests prove to be unsuccessful or produce returns below those expected, the performance of the fund could be materially adversely affected. Furthermore, laws and professional regulations in litigation funding can be complex and uncertain and details of certain cases are unlikely to be disclosed because of confidentiality and other restrictions.
There can be no assurance that Pretium’s objectives will be achieved, that any risk management will adequately protect against downside losses, or that an investor will receive any return on its investment. An investment should only be considered by persons who can afford a loss of their entire investment. Past activities of investment entities sponsored by Pretium provide no assurance of future results. Past or targeted performance is not a guarantee, projection or prediction and is not necessarily indicative of future results.
These materials do not constitute, or form part of, any offer to sell or issue interests in an investment vehicle or any other entity. Any such offer or solicitation will be made solely by means of a definitive offering document, which will describe the actual terms of any securities offered and will contain material information regarding the securities. Any information contained herein will be superseded by information delivered to Recipient as part of an offering document. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein.
Past performance is not necessarily indicative of future results and there can be no assurance that targeted returns will be achieved. There can be no assurance that Pretium will achieve results comparable to or that the returns generated will equal or exceed those of other investment activities of Pretium or that Pretium will be able to implement its investment strategy or achieve its investment objectives. Pretium does not make any representation or warranty, express or implied, regarding future performance.
Certain information contained in these materials constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “seek,” “expect,” “anticipate,” “project,” “estimate,” intend,” continue,” “target,” “plan,” “believe,” the negatives thereof, other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results of the actual performance of an investment vehicle or strategy may differ materially from those reflected or contemplated in such forward-looking statements.
Certain information contained in this presentation has been obtained from published and non-published sources prepared by third parties, which, in certain cases, have not been updated through the date hereof. While such information is believed to be reliable, Pretium has not independently verified such information nor does it assume any responsibility for the accuracy or completeness of such information. Except as otherwise indicated herein, the information, opinions and estimates provided in this presentation are based on matters and information as they exist as of the date these materials have been prepared and not as of any future date and will not be updated or otherwise revised to reflect information that is subsequently discovered or available, or for changes in circumstances occurring after the date hereof.
These materials are intended to assist the Recipient in connection with its due diligence and to assist the Recipient in understanding the strategies that Pretium intends to pursue to seek to maximize portfolio performance. They are not intended as a representation or warranty by Pretium as to the actual composition or performance of any future investments that would be made by Pretium. Assumptions necessarily are speculative in nature. It is likely that some or all of the assumptions underlying the potential investments will not materialize or will vary significantly from any assumptions made (in some cases, materially so). The Recipient should understand such assumptions and evaluate whether they are appropriate for its purposes.
Recipients should note that COVID-19 has, among other things, significantly diminished global economic production and activity of all kinds and has contributed to both volatility and a decline in all financial markets. The ultimate impact of COVID-19 — and the resulting precipitous and near-simultaneous decline in economic and commercial activity across several of the world’s largest economies — on global economic conditions, and on the operations, financial condition and performance of any particular industry or business, is impossible to predict, although ongoing and potential additional materially adverse effects, including a further global or regional economic downturn (including a recession) of indeterminate duration and severity, are possible. The extent of COVID-19’s impact will depend on many factors, including the ultimate duration and scope of the public health emergency and the restrictive countermeasures being undertaken, as well as the effectiveness of other governmental, legislative and financial and monetary policy interventions designed to mitigate the crisis and address its negative externalities, all of which are evolving rapidly and may have unpredictable results. Even if and as the spread of the COVID-19 virus itself is substantially contained, it will be difficult to assess what the longer-term impacts of an extended period of unprecedented economic dislocation and disruption will be on future macro- and micro-economic developments, the health of certain industries and businesses, and commercial and consumer behavior.
