Following VIG, Stick Investment Considers Credit Spin-off... Specialization vs. Efficiency at Stake

Discussion on Independent Operation Led by Ilseong Kang
Concerns Over Capital Allocation Amid Upcoming Fundraising
"Too Early for Independence" vs. "No Time to Delay"

Stick Investment, a domestic private equity fund (PEF) management company, is considering the spin-off of its credit division. This move follows the trend set by IMM Private Equity (PE), Glenwood Private Equity, and VIG Partners, which have either operated their credit divisions as separate legal entities or have separated them from the main organization. However, there are also some differing opinions within Stick regarding whether turning the credit business into an independent company is the optimal approach in terms of fundraising and organizational efficiency.

According to the investment banking (IB) industry on October 2, Stick Investment recently established a new corporation dedicated to credit investments and is reviewing plans for the independent operation of its credit division. It has been reported that Ilseong Kang, Head of the Credit Division at Stick Investment, will lead the new organization. The final decision on whether to proceed with the spin-off is expected to be made after an internal review and board discussions.

The credit division is a business unit that responds to corporate funding needs by means other than equity investment, including mezzanine, lending, and structured finance. The credit strategy in the domestic PEF market has grown rapidly, driven by rising interest rates, changes in the acquisition finance market, and increasing demand for customized corporate financing. Kang has led the division since Stick established its Credit Headquarters in April 2022.

The broader trend among large domestic PEF managers toward credit independence is cited as one of the main reasons for Stick’s consideration of a spin-off. Since credit investing differs from traditional buyouts in terms of investment targets, revenue structure, and risk management, the plan seems to be to separate it as an independent legal entity in order to establish standalone investment decision-making and risk management frameworks. Previously, IMM PE launched IMM Credit & Solutions (ICS) as a subsidiary early on. Glenwood PE also developed Glenwood Credit as a separate business, and VIG Partners is pursuing the independence of VIG Alternative Credit (VAC) under the leadership of Executive Vice President Younghwan Han.

However, some argue that the timing may prove to be a stumbling block. There are concerns that if Stick Investment chooses to separate the credit division as an independent corporation while also preparing for fundraising in the PE division next year, its fundraising burden could increase. Since both the PE fund and the credit fund would be approaching the same limited partners (LPs) for capital at the same time, this could stretch the available commitments across both efforts.

An industry official from the PEF sector stated, "LPs may ultimately perceive both funds as products from Stick as a single house. Since funding resources are limited, if both the PE and credit funds simultaneously raise capital, the size of both could end up being reduced compared to their targets."

There are also lingering questions as to whether the credit division has reached sufficient scale to ensure stable profitability as an independent entity. Stick Investment's credit division, established only in 2022, is a relatively new business unit. Although it has strengthened its presence through the formation of its first blind fund and several structured investments, it is difficult to say it has built a long-standing track record and fee base like the buyout division. An IB industry source noted, "If Stick's credit division pushes for a spin-off while just reaching its break-even point (BEP), it may face increased fixed costs. For now, collaborating with Stick’s internal infrastructure—including senior partners with industry expertise, the corporate value enhancement team, and the risk management and strategy department—may still be the more efficient option."

Still, considering the growth potential of the credit market, some believe that it may be difficult to further delay the transition to an independent company. Domestic institutional investors have recently shown increasing interest in credit strategies, which are considered to offer greater visibility of returns compared to buyouts. A Stick Investment representative commented, "We are keeping all options open and are considering various possibilities."

This content was produced with the assistance of AI translation services.