Pearl Diver ramps new fund and looks to mezz

Pearl Diver Capital, one of the CLO market’s biggest equity investors, has finished investing a new $350 million CLO equity fund. Neil Basu, Pearl Diver’s chief executive and managing partner, confirms that it has completed ramping the fund, known as PDC Opportunities VI. This takes Pearl Diver’s assets under management to around $1.3 billion. The new fund follows a similar strategy of investing in mainly control CLO equity positions, as most of the London-based firm’s other vehicles do. Pearl Diver’s vehicles are structured as private equity-style funds. They mostly have the ability to invest in both US and European CLOs, but have historically focused mainly on the US market. “The strategy is control equity with an activist angle in most of our recent funds,” says Basu. “We have been very active recently in driving resets and refinancings in the CLOs we own.”

Basu declines to comment on rumours that Pearl Diver is now in the market with a further fund-raising effort, ranging across both CLO equity and CLO mezzanine. The firm has previously invested in CLO mezzanine tranches, but has not raised a fund solely dedicated to mezzanine tranches before. This is thought to be one option available to investors in a future fund, as well as a more conventional control equity option. In its equity investments, the new fund could also provide risk retention-compliant capital for new CLO deals, it is believed. Basu says he can’t comment on the specific fund, but confirms that Pearl Diver is interested in providing managers with a risk retention solution. “We can provide horizontal capital, and we will also be able to work with managers who are taking vertical slices with financing,” he says.

Basu co-founded Pearl Diver Capital in 2008 with Chandrajit Chakraborty, the two having worked previously at Wachovia and
Nomura. Matthew Layton, who came on board a year later from Alcentra, board a year later from Alcentra, is the third part of the firm.