When Gerry Schwartz launched Onex Corp., four decades back, the financier focused on trying to do one thing, really well.
The Onex crew did leveraged buyouts. They made a lot of money buying and selling businesses. And as the Toronto-based company matured, Mr. Schwartz realized his team had developed deep expertise in the loan markets that provide Onex with cash for acquisitions. The chief executive officer also realized clients, such as pension plans, were willing to entrust the asset manager with more money, if Onex could find suitable places to invest.
So Onex opted to try doing two things, really well. In 2007, Onex launched a credit division, initially investing in bundles of non-investment grade debt known as collateralized loan obligations, or CLOs. Over the past year, Onex scaled up the business, starting with the arrival of Blackstone veteran Jason New in April, 2020, as the leader of the credit products team.
In December, Onex acquired Boston-based Falcon Investment Advisors LLC to add expertise in sectors such as private lending and mezzanine debt – loans that rank behind all other borrowing. In addition, Onex hired a number of senior credit portfolio managers, with experience in every flavour of fixed-income investing. Rival private-equity firms founded around the same time as Onex, such as KKR and Blackstone, went through a similar evolution.
Onex’s credit team now manages more than US$15-billion, a significant portion of Onex’s US$45-billion portfolio. Expansion posed a challenge: How could Mr. Schwartz ensure the culture that made Onex successful in private equity and CLOs takes root in the new credit team, largely built by hiring outsiders? And how could the company transfer its secret sauce to wealth management platform Gluskin Sheff, acquired in 2019 for US$330-million?
Enter Bobby Le Blanc, and a concept Mr. Schwartz calls “One Onex.”
A 22-year-veteran of Onex’s private equity group, Mr. Le Blanc was named the company’s first president last August. The move simplified Onex’s management structure, giving the New York resident responsibilities previously shared among five senior executives, including Mr. Schwartz.
Prior to joining Onex in 1999, Mr. Le Blanc worked for Warren Buffett’s Berkshire Hathaway Inc. for seven years, while his first job out of university was at General Electric Co., then run by Jack Welch. This is an executive who has spent his career at companies with leaders who instill a disciplined approach to investing.
In his first media interview – which Mr. Le Blanc conducted while standing and occasionally moving around, rather than sitting in front of a video camera – Onex’s president said a major portion of his new(ish) job is pounding away at the idea of One Onex. It’s a simple mantra meant to get employees thinking about the whole business, rather than just their own relatively narrow responsibilities, when they come to work each day.
What does One Onex actually look like at an asset manager with 500 employees in five cities, during a pandemic? It means moving information around the organization, ensuring everyone’s expertise is brought to bear on an investment. Mr. Le Blanc said there are times when Onex’s private-equity executives, who talk daily to management teams, pick up on shifts in business conditions before they show up in credit markets.
Conversely, Mr. Le Blanc pointed to recent internal conversations on potential investments in health care companies that involved both private-equity and credit professionals. He said through the lens of equity investors, the emphasis was on the sector’s strong long-term fundamentals, while the Onex credit team focused on short-term problems that would influence corporate bond markets.
One secret to success in both private-equity and credit markets is avoiding businesses that go bust, wiping out an entire investment. By drawing on insights from across the company when making investment decisions, Onex is largely steering clear of potholes.
Onex’s delinquency rate on CLOs, going back to the global financial crisis in 2008, is just 0.45 per cent of its portfolio, a small fraction of a 2.96-per-cent overall delinquency rate in leveraged loan markets, RBC Capital Markets analyst Geoffrey Kwan said in a recent report. “We continue to think that Onex’s CLO business is attractive and offers another source of diversification,” Mr. Kwan said.
As equity benchmarks hit new highs, Mr. Le Blanc said institutional clients continue to shift capital away from public markets and into alternative asset classes such as private equity and credit. That translates into a steady stream of new investments. In April, Onex launched a US$510-million CLO, its 25th such offering. This spring, the company also took stakes in digital learning business Weld North Education and mental-health specialist Newport Healthcare.
In the next stage of Onex’s growth, its private-equity group will launch a new flagship Onex fund and an ONCAP fund, which invests in small to medium-sized business. At the same time, the company plans to launch new credit products and expand in regions such as Europe. Mr. Le Blanc said: “We now have a team that covers the whole waterfront in credit markets, a business can be consistently profitable and globally scalable.”
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Andrew Willis