First Eagle closes its fifth fund at more than $1bn

First Eagle Alternative Credit has closed its fifth direct lending fund at more than $1 billion, including leverage.

Direct Lending Fund V, which was launched in February 2021, provides loans to private equity sponsors and their mid-market companies with EBITDA between $5 million and $50 million, with an emphasis on those with about $25 million of EBITDA.

The capital was raised from a series of global institutional investors, including about 50 percent from insurance companies, with the remainder coming from endowments, foundations and pension funds, Chris Flynn, president of First Eagle Alternative Credit, said in an email.

“Despite a fundraising period that took place largely during covid when no in-person meetings were taking place, [First Eagle] had significant inflows from new investors while maintaining a healthy re-up rate,” Flynn said. He added that the manager was pleased to receive interest from pension funds, given that insurance companies have comprised a large portion of prior funds. Capital for Fund V came predominantly from US investors, with additional interest from Canada and Europe, Flynn said, with the strong dollar proving to be a bit of a headwind toward the end of the raise.

“Following [our] record deployment in directly-originated loans in 2021, we are well-positioned to further build our portfolio,” Flynn said in a news release announcing the close.

The predecessor fund, THL Credit Direct Lending Fund IV, closed in February 2020 on $782 million, exceeding its $750 million target.

First Eagle’s direct lending origination model is industry focused, Flynn said, and favors sub-sectors with its industry verticals, including healthcare, information technology, asset-based lending, business services, consumer and financial services. He added that the latest fund is the second to include asset-based lending originations, which have been “very accretive and are heavily in demand by borrowers”.

Direct Lending Fund V has an internal rate of return of 11 percent, with a 0.85 percent management fee and a carry of 15 percent, per Private Debt Investor R&A. Flynn said in the email that First Eagle’s fees are investor-oriented, and are only charged on invested capital, as opposed to committed capital. He added that the firm employs a European waterfall on incentive fees, which he said aligns its long-term interest with that of investors.

First Eagle Alternative Credit, an alternative credit investment manager for both direct lending and broadly syndicated investments, had approximately $21 billion of assets under management as of 30 June 2022.