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Manager Backed by Investcorp Raises $1B in Opportunistic Credit

Nut Tree, founded by an ex-Redwood Capital partner, reached the milestone after three years in a hedge fund partnership program.

Alternative asset manager Nut Tree Capital Management has reached the $1 billion mark in opportunistic, alternative credit funds, according to alternative investment firm Investcorp, which seeded Nut Tree in 2015.

Jed Nussbaum, a partner at distressed manager Redwood Capital, formed Nut Tree in 2015, a year when credit markets struggled. Nut Tree launched with $100 million in assets, which included Investcorp’s anchor capital. Investcorp is a $22.5 billion alternative investment firm with ties to the Gulf Cooperation Council and offices in Bahrain, New York, London, Abu Dhabi, Riyadh, Doha, Mumbai, and Singapore

Lionel Erdely, head and chief investment officer of absolute return investments at Investcorp, said reaching $1 billion in assets is an important signal for pension funds and other investors.

“Firms that haven’t been able to grow the first three years generally struggle to show robust growth after a while,” said Erdely. He added that $1 billion isn’t a magic number, and the optimum size of a fund depends on the sector. Investcorp’s latest hedge fund seeding deal was with Shoals Capital Management in 2018. 

“It was a challenging time for credit,” said Erdely of the year that Nut Tree launched. “Nobody could call at the time if it was just a correction or something deeper. But when we deploy seed capital, we want managers that have gone through different market cycles, different macroeconomic environments and can navigate through those. That was true of Jed and his team.” 

[II Deep Dive: Private Credit Funds Stabilize Markets, Research Shows]

Investcorp is now looking to seed market-neutral hedge funds that are focused on equity, fixed income, and foreign exchange.

“We’re now looking at strategies that can deliver steady returns regardless of where credit spreads are or what the equity markets are doing,” he said.

In addition to providing capital, Investcorp advises managers on building their businesses and provides distribution support. Hedge funds can also co-invest with Investcorp’s special situations business. 

In addition to the hedge fund partnership program, Erdely oversees Investcorp’s business of taking stakes in alternative investment firms. He said that unlike others, he hasn’t experienced the negative effects of an increasingly competitive business.

That’s in part because Investcorp focuses on middle market alternatives firms with about $2 to $7 billion in assets, rather than much larger shops. Since the financial crisis, LPs have gravitated to the bigger firms with brand names. “There’s still a scarcity of capital in the middle market,” he said. 

Last year, Investcorp hired Anthony Maniscalco, who was most recently co-head of Credit Suisse’s Anteil Capital Partners group, to head up the stakes business. Investcorp takes minority equity interests of less than 25 percent in mature alternative investment managers, including private equity, private debt, real estate, venture capital, hedge funds, and possibly infrastructure firms.

An earlier version of this story misstated the size of funds in which Investcorp takes stakes and incorrectly stated that Nut Tree was founded by Redwood Capital, rather than an ex-Redwood Capital partner. II regrets the errors.

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