HPS closes on $9bn mezzanine debt fund

HPS Investment Partners has closed on a $9 billion mezzanine debt fund, one of the largest-ever funds dedicated to subordinated debt, surpassing its target of $8 billion.

The fund, Mezzanine Partners 2019 Fund, will invest in junior debt as well as “equity-like instruments” across a broad array of industries focusing predominantly on North America and Western Europe.

The close of the HPS fund, which was launched in 2019, is among the largest ever raised for riskier mezzanine debt, which ranks behind bank loans and other first-lien debt in the capital structure. The fund’s size is also notable, as the close comes amid a virtual standstill in fundraising for subordinated debt funds precipitated by the coronavirus pandemic in the first half of 2020 (see our story on subordinated debt). Prior to the covid-19 outbreak, Goldman Sachs raised nearly $10 billion for its mezzanine debt fund in late 2018.

The HPS mezzanine fund will have $11 billion of capital to invest, including a $2 billion borrowing facility. The fund has already invested about 50 percent of its capital, according to a statement by the New York-based manager. Its predecessor fund, Mezzanine Partners Fund III, held a final close in December 2016 and completed its investment period September 30. In 2020, HPS’s private credit platform has invested more than $12 billion in 54 portfolio companies, according to the statement.

HPS didn’t comment on the target or actual returns of either fund, nor did it identify any investors. But Scott Kapnick, governing partner and chief executive officer of HPS, said that a broad range of investors around the globe continue to express “strong demand” for established, non-investment grade credit platforms with disciplined risk management and tailored risks and returns.

Private Debt Investor reported in February 2019 that the Teachers Retirement System of Louisiana and the Arizona State Retirement System were among investors in the predecessor fund, Mezzanine Fund III.

As of October this year, HPS Investment Partners had $65 billion of assets under management.