Inside Castlelake’s Slow and Steady Succession Plan
The alternatives investment firm is trying to avoid pitfalls its fellow managers have faced.
It’s not always easy to get succession planning right. That’s why alternative investment manager Castlelake spent five years setting up its leadership changes.
Now the firm is ready to make its plans public, and co-founder and CEO Rory O’Neill is taking a step toward retirement — although he’s not moving on just yet.
Castlelake, which manages $20 billion, has appointed co-founder and CIO Evan Carruthers as co-CEO. The move will allow O’Neill to step down from his CEO post in roughly 18 months, when he will move into an executive chairman role.
The move is part of the firm’s broader succession plan, a slow leadership evolution that aims to avoid pitfalls that some of the $20 billion alts manager’s peers have faced. In recent years, some firms have had to pivot their succession plans after surprise exits, while outright disputes about compensation and titles at other investment managers have spilled out into public view.
O’Neill and Carruthers have been insistent that this won’t happen to Castlelake.
“There’s a lot of different types of personalities in our industry,” O’Neill said, pointing to firms where leadership has become synonymous with the firm’s name. “Our thought process has been: This is less about me and Evan as individuals and more about thinking how you put together an organization that really serves its clients.”
Carruthers and O’Neill do have a leg up on their competitors, at least as far as succession planning goes: They are co-founders with an age gap. According to O’Neill, he has always believed that Carruthers would take on the CEO post eventually.
That’s not to say there haven’t been hiccups during the process, however. Castlelake initially planned to roll out a succession process during 2020. When the pandemic hit — greatly affecting the firm’s aviation financing business — they had to pause. “If it wouldn’t have been for Covid, we probably would have done it earlier,” Carruthers said. “Covid created a bunch of challenges for us on the investment side . . . Things are more stable now.”
External factors aside, Carruthers was also concerned about what it would mean to juggle the CEO and CIO roles. “I didn’t want to be put in a position where I was having to do two jobs,” he said. “That was a point we needed to sort out.”
To manage that, the firm set up an “office of the CIO,” which includes two deputy co-CIOs, Joe McConnell and Isaiah Toback. They already share some of the investment decision-making duties with Carruthers.
Along with announcing Carruthers’ promotion to co-CEO, Castlelake also said that it has promoted head of human resources and talent Yen-Wah Lam to chief people officer and president. Lam will be responsible for the firm’s human resources, legal, and operations teams.
Castlelake also changed its ownership structure, transferring stakes from O’Neill and Carruthers to other senior staff. (The firm did not disclose which specific employees received stakes.)
“One of the pitfalls of succession with alternative investment GPs: You might have founding partners that start to transition and there’s no ownership transfer that happens,” Carruthers said.
Another focus of Castlelake’s succession planning process has been communication with asset owners. The firm, which counts CalSTRS, the New York State and Local Retirement System, the Retirement System of South Carolina, and the Texas Employees Retirement System among its limited partners, turned to its LPs for advice during the process.
“We got some great advice from our LPs,” Carruthers said. “In addition to Rory and I providing some clarity around our roles and responsibilities, we wanted to be very intentional and transparent with the LPs and give them a ten-year roadmap of what succession looks like and be very clear about how it impacts investment decision-making.”
The ten-year focus is intentional: Castlelake is in the process of raising a new fund. When fundraising, the team felt it was important to be able to communicate the team’s involvement in the investment process before LPs committed capital. O’Neill plans to stay involved with the firm through the duration of that fund’s life, he said.
“The LPs are better off, and the firm is better off with a well-defined succession plan that everybody understands,” he said. “There are no surprises along the way.”