Article originally published on Reuters.com.
Crayhill Capital Management, which was formed in August by two veterans of $14 billion hedge fund firm Magnetar Capital, is joining the ranks of lending-focused private fund managers trying to make money where banks have pulled back.
Joshua Eaton and Carlos Mendez of New York-based Crayhill will employ a similar strategy to what both did at Magnetar: providing capital to businesses in need through a so-called private debt strategy. The investment style typically refers to one-off loan agreements, which unlike corporate bonds come from non-bank firms and are not publicly traded.
The firm is just starting to meet with investors and decide on specific terms, according to a person familiar with the situation but not authorized to speak publicly.
Hedge fund lobbying group Alternative Investment Management Association said in a May report that such “alternative credit” lenders were increasingly replacing banks in funding small-to-mid-sized businesses, especially in Europe and the United States.
“Arguably, the role of non-bank finance has never been more important than today,” the report said.
AIMA said private debt funds now manage around $440 billion, with $64 billion allocated to the sector in 2014 alone. Firms like Apollo Global Management LLC, Blackstone Group LP and KKR & Co LP already have large credit arms.
Banks have pulled back from some lending because of tighter lending standards and increased capital requirements imposed by regulators.
Like other credit-focused funds, Crayhill’s will have a hybrid hedge and private equity structure. Future Crayhill clients will probably have to commit their money for between two and five years, the source said. That compares with one year for many hedge funds and 10 years for many private equity funds.
In contrast to private equity funds, Crayhill’s managers will not own businesses. And unlike hedge funds, they will not trade securities.
Investments will typically be held for between three and seven years and will focus on markets in North America, Latin America and Europe, the source said.
Eaton and Mendez, who were part of Magnetar’s fixed-income group, also helped run an $860 million vehicle focused on investing in UK solar companies. They will continue to sub-advise that fund for Magnetar, which maintains ultimate investment discretion.
Eaton and Mendez are the principal owners of Crayhill. Frederick Horton, a third founder, runs operations. (Reporting by Lawrence Delevingne; Editing by Jennifer Ablan and Lisa Von Ahn)