(Reuters) – Trading firm Freepoint Commodities and a financing group including Kohlberg Kravis Roberts & Co (KKR) and CPPIB Credit Investments are joining forces to challenge Wall Street’s long dominance of funding the raw materials industry.
Freepoint and recently formed merchant banking group MCS Capital Markets LLC announced on Thursday a “strategic alliance” combining the financial might of KKR, private equity group Stone Point Capital and CPPIB Credit Investments, an affiliate of Canada Pension Plan Investment Board (CPPIB), with the trading savvy of the Stamford, Connecticut-based commodities merchant.
It is a novel model that some expect to become more common as global investment banks like Barclays and Deutsche Bank shut their commodity trading desks.
While a growing number of privately held trading firms have turned to cash-flush private equity groups for capital to back their operations – including Freepoint itself – few have formed formal tag-teams in an effort to win financing deals.
“We believe that the firms’ skill sets are highly complementary and will drive increased business activity,” which helped fund Freepoint’s launch in 2011. They will seek to provide “debt and equity financing solutions for clients in the energy and commodities sector,” they said in a release.
MCS, a joint venture between Stone Point, KKR and CPPIB formed in early 2013, says it has completed 50 transactions involving over US$30 billion — including a financing and physical oil supply deal that Freepoint closed July last year.
Riverstone Holdings helped launch commodities logistics and trading firm TrailStone LP last year, led by former executives from Deutsche Bank’s commodities group. In October, alternative investment group Oaktree Capital Management bought half of proprietary energy trader Hetco, promising to plow in more cash to expand the New York-based firm’s operations.
“We believe that there are numerous underserved areas in energy and commodities that we can target by combining our focus with MCS’ structuring and distribution expertise as well as its access to flexible capital,” said Freepoint CEO David Messer.
(Reporting by Jonathan Leff; Editing by Alden Bentley)
(This story has been edited by Kirk Falconer, editor of peHUB Canada)
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