Charlesbank fund exceeds $700m hard-cap

Credit Opportunities Fund II has held its final close, surpassing its $500m target.

US fund manager Charlesbank Capital Partners said it has closed its Credit Opportunities Fund II well in excess of its $700 million hard-cap. The fund will focus on making credit investments in mostly North American mid-market companies with average enterprise values between $150 million and $1.5 billion.

“Our strategy is to leverage all the insights of our firm,” Sandor Hau, a managing director at Charlesbank and head of its credit team, told Private Debt Investor. “In this market, many companies need capital.”

He added that Charlesbank plans to invest in “high-quality businesses” in the middle market that it knows, and to both “buy debt opportunistically in the secondary market and originate financings for companies”.

He said the fund was targeting unlevered returns in the mid-teens or higher. It expects to see continued opportunity to invest in mispriced credit risk, and is also targeting risk across the credit spectrum of performing, special situations and distressed credit investments.

Hau said Charlesbank believed the market was overheating before the coronavirus pandemic precipitated major disruptions. He noted that more than 80 percent of new issues had been made with covenant-lite documentation, even as leverage and adjustments to EBITDA were rising significantly. The pandemic “has clearly increased the opportunities,” he said, and that in addition to distressed opportunities, the fund would focus on mostly private equity-owned companies in sectors including industrials, telecom, healthcare, technology and consumer. He said that Charlesbank already had invested and committed about 20 percent of the fund’s capital.

The strategy is “particularly well-suited to the current environment,” and the manager has “a strong capital base to invest in the compelling credit opportunities” in its pipeline, Brandon White, a managing director and co-chair of Charlesbank’s credit investment committee, said in a statement.

Charlesbank said the fund comprised a diverse group of more than 30 existing and new investors, including public and corporate pensions, endowments, asset managers and family offices. San Antonio Fire & Police Pension Fund reportedly was among the investors, with a $30 million commitment.

Charlesbank Capital Partners, a mid-market private equity investor managing more than $6 billion, launched its credit strategy in 2016 with a credit sleeve inside Equity Fund VIII that focused on identifying credit investments with equity-like returns, mostly in non-performing stressed and distressed credits. It said its first fund, Credit Opportunities Fund I, was closed at an intentionally small $203 million in 2018. Hau said that fund was fully invested, and that it has been exceeding return expectations.