Barings, an investment management subsidiary of MassMutual, has closed its first private equity and real assets commingled fund with nearly $1 billion in commitments from pensions, family offices, foundations, sovereign wealth funds, and insurers.
The new commingled fund, called the Barings Asset-Based Income Fund, will be managed by the same team that has managed the strategy for large institutional investors in separate funds, called funds of one, which are customized investment vehicles for a single investor that require significant capital commitments.
The team managing both the new commingled fund and the funds of one hails from Wood Creek Capital, an asset manager founded in 2005. In 2016, MassMutual merged a number of its asset management subsidiaries, including Wood Creek, into what’s now called Barings.
This is the first time Barings, which manages $317 billion, has offered a product for investors who want to access to this strategy but are not large enough for the funds-of-one structure. The Barings fund is two and a half times larger than the average first-time middle market private equity fund, according to PitchBook.
Jonathan Rotolo, head of private equity and real assets for Barings, thinks the fund’s popularity was driven in part by the record amount of dry powder — money waiting to be invested — that private equity funds have on hand. Private equity managers are facing challenges in deploying their huge war chests in attractively-priced deals, but Barings’ asset-based income fund has a mandate that allows it to sidestep some of these potential problems by investing directly in real assets and asset-based businesses.
“We have a two-pronged approach to getting money to work,” said Rotolo, in his first interview about the fund. “In our fund we might buy assets directly, say a portfolio of cell phone towers or commercial aircraft. Or we can buy those things directly and then hire somebody to service those assets. Or buy a cell phone tower company or aviation leasing company.”
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Rotolo said that the strategy has a component of “entrepreneurialism” to it but isn’t venture capital.
“We’re not creating a new product or category that requires businesses or consumers to adopt a new technology,” he said. “It’s in areas that are well developed, where we can assess the risk.”
The new fund has already deployed more than 50 percent of its capital in several of its target markets, including aviation leasing, media and entertainment, pharmaceuticals, and financial services.
Although Rotolo said he can’t discuss active investments, he noted that until last year, the group owned the rights to the song “My Favorite Things,” which Ariana Grande’s hit “7 Rings” samples, through the Concord Music Group, an independent music company the legacy Wood Creek team built over 12 years. Every time Grande’s song is bought or streamed, Concord earns a royalty.
The team started investing in music in 2006 by purchasing the rights to songs. Recently, one institutional client became the full owner of Concord, but Barings still advises the business. It’s now taking a similar strategy in pharmaceuticals and other sectors.
Rotolo said investors are more willing to look at new and different strategies than they were five years ago.
“We see more investors trying to simplify their asset allocations to have fewer and broader buckets to give them more flexibility to find homes for things,” he said. “Investors are trying to get diversification and trying to get returns by moving to alternatives, given the challenges of low yields in fixed-income markets, But they want to do it prudently.”