FROM: Don Pierce, Chief Investment Officer
SUBJECT: Arrow Global - Master Custody Account
RECOMMENDATION:
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Recommend that the Board approve the establishment of a Master Custody Account (MCA) with Arrow Global, including a $175 million initial allocation, subject to completion of due diligence and legal documentation.
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BACKGROUND:
Starting in 2024 staff undertook an effort to broaden the portfolio's capabilities in European credit. As previously communicated, this included an in-depth process to survey the market and identify target areas. Beginning with 62 survey respondents, staff conducted focused diligence on 10 managers and identified 4 managers that aligned with SBCERA's objectives from a strategy and firm perspective.
Arrow Global (Arrow) was founded in 2005 by current CEO Zach Lewy. Arrow is a vertically integrated platform of loan servicing and asset management businesses operating in the U.K., Ireland, Netherlands, Germany, France, Italy, Spain, and Portugal. Across 24 platform companies, the firm oversees about ?110 billion of assets. Staff and NEPC believe the platform gives Arrow sourcing and information advantages. Real estate is the most common collateral, but Arrow also has expertise in corporate loans to small companies, bankruptcy claims, mortgage portfolios, consumer, insurance claims, and specialty lending. The firm's fund business has about ?11 billion commitments and is run out of a centralized team in London. Arrow is currently majority owned by a private equity firm, TDR.
We believe Arrow's platform is aligned with SBCERA's portfolio objectives because they seek to buy assets at attractive valuations, have a focus on cash flow, and the platform has a unique ability to find and invest in opportunistic situations. We believe Arrow's strategies are diversifying and can generate attractive risk adjusted returns for the SBCERA portfolio. We expect the portfolio net total return to be in the mid-teens range.
Th...
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