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Iowa picks Monroe, Tennenbaum in direct lending search

The Midwestern US pension fund plans to hire two firms for its first direct lending mandate at a total of $400m.  

The Iowa Public Employees Retirement System (IPERS) has selected Monroe Capital and Tennenbaum Capital Partners for its first direct lending mandate. The two firms will oversee a total of $400 million, though the specific amount allotted to each manager hasn’t yet been determined. The US pension fund, which has $27 billion in assets, first launched the search in November last year. The mandates are pending successful contract negotiations with both firms.

According to documents presented at a recent board meeting, IPERS selected Monroe, Tennenbaum, Golub Capital and TCW as finalists in the search. These four, and two others, including Ares Management and Audax Group, were evaluated based on a scoring system of their organization/firm, product, people/experience, investment process, performance and fees. Monroe and Tennenbaum scored the highest, averaging at 3.67 and 3.63 out of 4, respectively.

Monroe got high marks on product (0.77), people/experience (0.75) and investment process (0.76). According to the LP’s documents, the firm has about $3.2 billion in capital invested in mid-market direct lending, with a focus on senior secured lower mid-market companies. Its average loan size is $62.7 million, the leverage multiple is at 3.7x and its gross unlevered IRR since inception stands at 8.9 percent.

Tennenbaum also scored high marks on the product and people/experience portions at 0.76 each. The Santa Monica-headquartered firm has about $6.4 billion in assets under management across direct lending and special situations. It focuses on first lien senior secured loans of North American companies, with an emphasis on those with enterprise values of $100 million to $1.5 billion. Its average loan size is $206 million with a leverage multiple at 4.2x. Gross unlevered IRR since inception in direct lending is at 12.8 percent.

The managers were evaluated by IPERS board member Lisa Stange, the investment staff, including chief investment officer Karl Koch and senior investment officers Keith Scholten and Pat Reinhardt; as well as the pension’s consultant, Wilshire Associates.

IPERS received 23 responses to its RFP and whittled the list down to the six finalists that were scored, of which four were then picked for interviews held on 14 April. “Both firms demonstrated strong origination, credit underwriting and workout capabilities,” said a statement on the final selections from IPERS.