HPS Investment Partners is aiming for a first close to surpass the halfway mark at the beginning of the second quarter for its $8 billion mezzanine fund, according to a source familiar with the matter.
The New York-based firm is targeting to formally lock down $5 billion for HPS Mezzanine Partners 2019, this person said. The firm’s previous such vehicle, Fund III, beat its target of $5.5 billion to raise $6.6 billion, holding a final close in December 2016.
The firm declined to comment.
The vehicle will target primarily North American companies, both sponsored and unsponsored, according to documents from the Teachers Retirement System of Louisiana.
The pension fund committed $100 million to the vehicle, a spokeswoman confirmed, after it committed $75 million to Fund III. The Arizona State Retirement System committed $500 million to the third vehicle as well.
HPS will make approximately 30-40 investments of $75 million-$800 million in the vehicle, according to the documents, and target businesses with an enterprise value of $500 million-$5.5 billion. The average portfolio company for the vehicle HPS is currently investing is about $300 million of EBITDA, the source said.
The firm anticipates deploying 90 percent of the fund into mezzanine and subordinated debt investments with the remaining 10 percent going toward equity kickers.
The management fee is tiered by commitment size, but many investors will end up paying a 1.5 percent charge on invested capital, the source said. The firm has had a very high rate of re-ups, but new investors are in the mix as well.
Fund III has achieved a 12.8 percent net internal rate of return and a 1.1x total value paid in multiple. Those numbers for Fund II are 17.7 percent and 1.6x, respectively.
Mezzanine debt funds raised $51.17 billion of the $134.9 billion collected for private debt in 2018, making it the most popular strategy, PDI data show. Much of that is attributable to the $9.9 billion Goldman Sachs raised for its GS Mezzanine Partners VII, which will have deployable capital of $13 billion with leverage.
The largest year for junior debt fundraising on record was 2016, when firms raised $60.56 billion. The massive amount was boosted by HPS and GSO Capital Partners, which raised $6.5 billion for GSO Capital Opportunities Fund III.
HPS oversees $9.7 billion in assets for its mezzanine strategy and manages $47.2 billion across the firm. In addition to junior debt, the firm invests in senior debt and lends to real estate projects and in the energy and power sector. Last July, the firm sold a minority stake to Dyal Capital Partners and in September purchased distressed debt firm Tålamod Asset Management.