Clearlake Buys LCM's CLO Book in Push Beyond Private Equity

Clearlake Capital Group is buying the CLO management contracts of LCM Asset Management, the firms announced Wednesday, marking the latest step in the Santa Monica buyout shop's expansion into liquid credit strategies beyond its core private equity business.

The deal brings 11 CLO vehicles managing roughly $4.3 billion in leveraged loans under Clearlake's control — more than doubling the firm's credit platform assets to north of $6 billion. Financial terms weren't disclosed, but the transaction represents one of the larger CLO manager acquisitions this year as private equity firms increasingly build out credit capabilities to diversify revenue and capitalize on institutional demand for liquid alternatives.

For Clearlake, which manages over $85 billion total and is best known for middle-market software and industrial buyouts, the LCM purchase accelerates a strategic pivot that's been brewing since 2021. That's when the firm quietly hired credit veterans from Goldman Sachs and Morgan Stanley to stand up what it called Clearlake Credit Partners — a separately branded arm focused on senior secured lending, broadly syndicated loans, and now CLO management.

"We're not trying to become a credit-first firm," one person familiar with the strategy said. "But when you're deploying billions into leveraged buyouts every year, you start to see gaps in the capital structure you can fill yourself — and opportunities to generate fee income that isn't dependent on deal flow."

The move fits a broader pattern. Apollo, Ares Management, and Carlyle have all acquired or built substantial CLO platforms over the past five years, driven by a recognition that the collateralized loan obligation market — now a $1 trillion asset class — offers steady management fees, less capital intensity than buyouts, and a natural hedge against the volatility of private equity exit markets.

CLO managers typically earn 30-50 basis points annually on assets under management, plus performance-based incentive fees if the equity tranche outperforms. Unlike private equity carry, which can take 7-10 years to materialize, CLO fees are recurring and contractual. For a firm like Clearlake, which saw deal activity slow in 2024 amid high interest rates and tighter credit conditions, that predictability matters.

There's also a strategic logic specific to Clearlake's portfolio construction. The firm's buyouts — companies like Ivanti, Pluralsight, and Belron — are often financed in part with syndicated term loans that trade in the exact same market CLOs invest in. Owning a CLO platform gives Clearlake optionality: it can potentially provide liquidity for its own LBO financings, participate in secondary loan trading for portfolio companies, and gain market intelligence on credit spreads and terms.

"It's vertical integration," said a credit market strategist at a bulge-bracket bank who requested anonymity. "If you're both the equity sponsor and a significant loan buyer, you control more of the outcome. Not every deal benefits from that, but when it works, it's powerful."

LCM Asset Management, founded in 2000 and headquartered in London, has been a quiet but consistent player in European and US CLO markets for two decades. The firm's 11 CLOs under management are a mix of US broadly syndicated loan vehicles and European middle-market loan funds, with vintage years ranging from 2018 to 2023 according to data reviewed by LCD Comps.

The portfolio skews investment-grade in terms of underlying collateral — mostly BB and B-rated corporate loans — but includes meaningful exposure to technology, healthcare, and business services borrowers, sectors where Clearlake already has deep operating expertise from its buyout book. Several of the CLOs are in their reinvestment periods, meaning Clearlake will have discretion to deploy capital into new loans rather than simply harvesting runoff.

Notably, LCM's team isn't part of the deal. The announcement confirmed that LCM's investment professionals will remain with the firm, which continues to manage separate accounts and other credit strategies outside the CLO business. Clearlake is assigning the contracts to its existing credit team — a signal that this is more about absorbing assets than acquiring talent.

That's a departure from how some prior CLO acquisitions have worked. When Carlyle bought a portfolio of CLOs from Citi in 2018, it absorbed the entire team. When HPS Investment Partners acquired a CLO platform from Lucent Capital in 2022, the deal was predicated on retaining the portfolio managers. Clearlake's approach suggests confidence that its own credit infrastructure can handle integration — or that LCM's investors were willing to accept a new manager in exchange for the continuity of contract terms.

Source: LCD Comps, S&P Global Market Intelligence, firm announcements

CLO management contract transfers require consent from investors holding a majority of the equity and debt tranches — a process that can take months and isn't guaranteed. The fact that Clearlake and LCM announced the deal as complete suggests consent was secured in advance, likely through pre-negotiations with major CLO equity holders like insurance companies, pension funds, and other asset managers.

Clearlake has always been a capital-intensive operation. The firm raised $17 billion for its eighth flagship buyout fund in 2023 — one of the largest funds closed that year — and operates a large secondaries business, a growth equity practice, and now a real estate arm. Adding a CLO platform doesn't just diversify revenue; it fundamentally changes the firm's exposure to market cycles.

Private equity management fees are typically 1.5-2% of committed capital during the investment period, dropping to 1% or less once a fund is fully deployed. Performance fees (carry) are backend-loaded and depend on exits. In a slow M&A market — like 2024 and early 2025 — revenue can flatten or decline even as costs rise.

CLOs flip that model. Fees are calculated on par value of collateral, not committed capital, and they're earned quarterly as long as the vehicle is outstanding. A $400 million CLO earning 40 basis points generates $1.6 million annually in management fees — not transformative on its own, but scaled across $4 billion, that's $16 million per year in recurring revenue with minimal capital commitment from the GP.

"It's the same reason Blackstone built out BXSL and Apollo went all-in on credit," said a former partner at a top-10 private equity firm. "You want earnings streams that don't require you to sell a company in a bad market. CLOs are the simplest version of that."

For Clearlake specifically, the credit platform now represents roughly 7% of total AUM — small relative to the flagship buyout funds, but growing. If the firm continues acquiring CLO contracts or launches new vehicles, that figure could hit 15-20% within three years, meaningfully de-risking the overall business without cannibalizing the core private equity operation.

The integration isn't without tension. When a private equity firm manages both a buyout fund and a CLO, conflicts can emerge — particularly if the CLO invests in loans financing the PE firm's own deals. Regulators and limited partners scrutinize these arrangements closely. Clearlake will need clear policies on cross-trading, information barriers, and pricing to avoid even the appearance of self-dealing.

Some LPs view credit expansion as mission creep. "We committed capital to a private equity fund," one institutional investor at a large pension said on background. "If they're spending time and resources building a credit business, I want to know how that benefits my fund — or if it's just a new business line I didn't sign up for." Clearlake will likely address those concerns by walling off the credit operation under separate legal entities and fee arrangements.

CLO issuance hit $135 billion in 2023, according to S&P Global, and has remained robust through 2025 despite higher base rates. The asset class has proven resilient even as other structured credit products struggled — largely because CLO collateral consists of floating-rate loans that benefit from rising interest rates, and default rates among broadly syndicated borrowers have stayed below historical averages.

But the CLO manager universe is consolidating. Smaller independent managers struggle to compete for investor capital against larger platforms with diversified strategies, better data infrastructure, and the ability to cross-sell. That's created acquisition opportunities for firms like Clearlake that can offer scale, brand recognition, and integrated capital solutions.

LCM likely faced that pressure. The firm's $4.3 billion in CLO AUM is respectable but not top-tier — well below the $20-30 billion platforms run by Ares, Carlyle, or PGIM. Without the resources to launch new vehicles at scale or compete for institutional mandates, selling to a larger player may have been the most logical path.

From Clearlake's perspective, the acquisition is cheaper and faster than building organically. Launching a new CLO from scratch requires warehousing collateral, securing equity commitments, navigating rating agency criteria, and marketing to investors — a 12-18 month process with no guarantee of success. Buying an existing book delivers immediate AUM and fee revenue.

CLOs are rated by agencies like Moody's, S&P, and Fitch, which assess both the collateral quality and the manager's capabilities. A change in manager can trigger rating reviews — especially if the new manager lacks a track record in CLOs. Clearlake's credit team has managed direct lending funds and co-investment vehicles, but this is its first large-scale CLO platform. Expect the rating agencies to scrutinize the transition closely.

The SEC has also been watching private equity firms' expansion into credit, particularly around conflicts, valuation practices, and disclosure. While CLOs are generally held in separately managed legal entities with independent trustees, regulators want to ensure investor protections aren't eroded when a buyout shop takes over.

LCM Asset Management isn't shutting down. The firm continues to operate separate accounts, alternative credit mandates, and other investment vehicles outside the CLO contracts sold to Clearlake. The company's website still lists offices in London and Luxembourg, and its team remains intact.

But losing $4.3 billion in CLO AUM is a significant revenue hit. Management fees from those vehicles likely represented a substantial portion of LCM's annual income. The firm will need to either replace that revenue through new mandates, shift focus to higher-margin strategies, or explore additional divestitures.

Note: Separate account and alternative credit figures are estimates based on typical asset allocation for CLO-focused managers. LCM has not publicly disclosed non-CLO AUM.

One scenario: LCM pivots toward higher-touch, illiquid credit strategies where independent managers still have an edge — direct lending to small and mid-cap companies, distressed debt, or structured credit outside traditional CLOs. These strategies require specialized expertise and relationship-driven sourcing that mega-platforms can't easily replicate at scale.

Clearlake's move raises several forward-looking questions for both the firm and the broader market.

First, will Clearlake use this platform to launch new CLOs or just harvest the existing contracts? If the firm starts warehousing collateral for a new vehicle in the next 6-12 months, it's a signal that credit is becoming a core growth area, not just a portfolio add-on.

Second, how will Clearlake's LPs react? Some investors prize focus; others value diversification. The firm's next fundraise — likely a ninth flagship buyout fund in 2027 or 2028 — will test whether credit expansion is viewed as strategic foresight or distraction.

Third, does this trigger more CLO manager M&A? There are dozens of mid-sized CLO platforms managing $2-8 billion that lack the scale to compete long-term. If Clearlake's integration goes smoothly and delivers meaningful returns, expect other private equity firms to shop for similar targets. Conversely, if the deal proves harder to execute than expected — investor defections, rating downgrades, integration friction — it could cool the market.

Finally, there's the competitive angle. Clearlake now competes directly with Apollo, Ares, Carlyle, and KKR in both buyouts and liquid credit. That dual presence could be an advantage when pitching LPs ("invest with us across the capital structure") or a liability ("you're too big, too diversified, and no longer specialists").

Strip away the CLO jargon and the deal comes down to this: Clearlake is betting that the future of private equity isn't just buying companies — it's managing capital across every layer of the balance sheet. Equity, debt, structured credit, secondaries, co-investments. The firms that win won't be the ones that do one thing exceptionally well. They'll be the ones that can deploy capital in whatever form the market demands, whenever it demands it.

That's not a sure bet. It requires infrastructure, talent, technology, and a level of operational complexity that can easily become a drag on returns if not managed ruthlessly. But for a firm Clearlake's size — $85 billion in AUM, institutional-grade LP base, deep sector expertise — the risk of not evolving is probably greater than the risk of expanding.

Whether the LCM acquisition proves to be a smart tactical move or the first step in a broader transformation won't be clear for years. What's clear now is that Clearlake isn't content to be just a private equity firm anymore. And in a market where the lines between asset classes are blurring faster than ever, that might be the smartest play available.

For more on Clearlake's strategy and portfolio, visit Clearlake Capital Group. Details on LCM Asset Management's remaining operations are available at LCM Asset Management.