Catalyst’s specialty is investing in distressed securities with a view to taking control of a company and turning it around. It’s a messy business that often involves court battles, the most high profile of which currently is Mr. Glassman’s standoff with other bond investors over the cellphone company known as Mobilicity. Catalyst has taken a big stake in the senior debt of the wireless company, and has a good chance of ending up in control of Mobilicity, which is rapidly running out of cash and options.Michelle Siu/The Globe and Mail
One of the country's most powerful and provocative private equity investors expects to soon have more dry powder.
Newton Glassman's Catalyst Capital Group Inc., Canada's second-largest private equity manager, expects to raise its fifth large fund as soon as 2014.
That would continue a quick pace of fundraising and deal making that has seen Catalyst close a $1-billion (U.S.) fund in 2011 and an $813-million fund just two months ago. The majority of the cash from both those funds is already invested, leaving Mr. Glassman facing the prospect of going to back to investors in 12 to 18 months, he said in an interview.
Catalyst's specialty is investing in distressed securities with a view to taking control of a company and turning it around. It's a messy business that often involves court battles, the most high profile of which currently is Mr. Glassman's standoff with other bond investors over the cellphone company known as Mobilicity.
Catalyst has taken a big stake in the senior debt of the wireless company, and has a good chance of ending up in control of Mobilicity, which is rapidly running out of cash and options.
The Mobilicity stake is one of three investments in Catalyst's most recent fund. The other two include real estate company Homburg, which has $1.5-billion of assets and recently went through a restructuring, and asset-based lending business Callidus Capital Corp.
With those deals done, the fund that closed just two months ago is already 50 per cent invested, with a gain approaching 40 per cent on the investments already done.
The previous fund, from 2011, is 90 per cent invested with a return of over 40 per cent so far.
The next time out, Mr. Glassman expects to raise more money. He said he generally tries to keep funds small, in part to reflect the number of transactions that are possible. The last time out, Catalyst underestimated.
"If you have half deployed before your final close, you didn't raise enough," he said, adding he expects the next fund would be $1-billion to $1.5-billion.
The returns from Catalyst's funds draw money from around the world. Catalyst's two most recent funds have ranked as the best performing in Canada, and at the top of the list of distressed funds globally, according to tracking firm Preqin.
Mr. Glassman and his partners have developed a reputation in Canada as combative. In the private equity business, he is open in his criticism of the standard leveraged buyout fund model where managers buy companies and try to sell them later. He argues that the business model for "vanilla, classic private equity" is under pressure because firms are concentrating too much on aggregating assets to maximize fees.
Earlier this year, he addressed the country's private equity association, standing in a room full of buyout executives and telling them their businesses were in trouble.
Also, in deals, his firm is known for being demanding and unyielding in negotiations.
Some of that is probably inevitable in a business where most every deal involves a restructuring, by its nature setting up confrontations. Mr. Glassman said it's also a reflection of what he calls an "underdeveloped market" for distressed credit.
"We have this reputation of being incredibly difficult and demanding. That's the downside of being in a market that doesn't fully understand what we do."