Avoca purchase seen as a positive

KKR’s acquisition of Dublin-based investment firm Avoca Capital is seen as a positive and will not affect its ‘highest standards’ asset manager rating, according to the ratings agency Fitch.

It was announced earlier this month that the US private equity giant KKR was taking over Avoca for an undisclosed fee.

“Fitch sees synergies between Avoca and KKR,” it said. “Specifically, Avoca complements KKR’s business in Europe, which is largely focused on origination; however, there may be potential conflicts of interest between the origination and asset management sides of the business.”

Avoca was set up in 2002 by ex-AIB executives Donal Daly and Alan Burke. The firm has roughly €6bn under management with a full staff of 67 employees. The two firms combined will have roughly $28bn (€20.3bn) of assets under management.

“Fitch believes that the acquisition will support the growth of products managed by Avoca. This growth will be supported on the one hand by KKR’s brand and distribution capability and on the other by KKR’s ability to meet European risk retention rules in new CLO issuance.

“From Jan 2014, all European CLO originators or sponsors will be required to retain a 5% interest in any new CLO issue throughout its life. Smaller asset managers with less financial resources are less able to meet this requirement than those owned by or part of entities with significant financial resources. New CLO issuance in Europe recommenced in 2013 with six CLOs totalling approximately $2bn issued in Q213.”

Avoca’s investment strategies are focused on senior secured loans, long/short credit, global convertible bonds, structured and illiquid credit, and credit opportunities.

Fitch said it expects operational risk associated with the transaction to be low. Avoca staff will become employees of KKR and, operationally, there will be no change to investment reporting lines, processes, systems, or locations in the short-term. “Furthermore, measures have been taken to incentivise retention of senior Avoca staff,” it said.

Fitch will closely monitor progress of the transaction.