HPS heading for $4.5bn direct lending fund hard-cap

The New York-based asset manager has surpassed the $3.1bn it collected for its predecessor.

HPS Investment Partners has raised $3.67 billion as of 30 June for its fourth direct lending vehicle, surpassing the $3.5 billion goal set for the fund that is targeting upper mid-market companies in North America and western Europe.

HPS Specialty Loan Fund 2016 (SLF IV) is on its way toward its $4.5 billion hard-cap, according to an investor presentation for the New Mexico State Investment Council. The Santa Fe-based state endowment will mull a $100 million commitment at its Tuesday meeting. A final close for the fund is anticipated in the coming weeks.

HPS could not be reached for comment.

The vehicle will hold 40-60 core positions in the vehicle, with hold sizes of $50 million-$250 million which will often include both the revolving credit facility and term loan, a fund summary from SIC consultant Aksia showed. The investments will target the top of the capital structure.

Since September 2016, the fund has made 16 investments with an average loan-to-value ratio of 54.7 percent. Though the fund summary showed the vehicle would target companies with $40 million-$100 million of EBITDA, the investor presentation showed the average portfolio company EBITDA in SLF IV so far is $116 million.

SLF IV will have a three-year investment period from the date of final close, a time window that can be extended by one year. A two-year harvest period will follow, subject to two one-year extension with limited partners’ approval, the investor presentation showed.

HPS is charging a 1.5 percent management fee on invested capital during the investment period, which decreases to 1.25 percent during the harvest period. The vehicle has a 15 percent carried interest with an American-style waterfall, meaning it will be paid on a deal-by-deal basis.

For SLF III, which raised $3.1 billion, HPS has exited 42 positions in the vehicle as of 30 June, generating a 17.2 percent gross internal rate of return of unlevered realised investments and a 1.23x cash-on-cash multiple, according to the SIC documents. SLF II, which raised $1.1 billion, produced 11.7 percent and 8.2 percent IRRs for levered and unlevered investments, respectively.

HPS, which has raised $13 billion in dedicated direct lending capital, was formed in 2007, then called Highbridge Principal Strategies, a JPMorgan-backed entity. In March 2016, HPS closed a management buyout of the firm, through which its senior executives acquired the business from New York-based JPMorgan. Altogether, the firm manages almost $42 billion in assets, with $27.6 billion in private credit and $14.2 billion in public credit.