Metropolitan Partners Group has held a final close on its latest, and largest, direct-lending fund, raising $240 million in the first quarter in its onshore vehicle. It expects to meet its $300 million target once it closes the offshore vehicle in the third quarter, a source familiar with the situation said.
The fund, Metropolitan Fund VI, launched in August 2019 and had a hard-cap of $350 million, the source said. The fund has already deployed 45 percent of the capital across 12 investments and has successfully exited one position, according to its announcement.
Metropolitan Partners, a direct lending fund manager that provides senior-secured, short-term capital to small and mid-sized businesses in the US, said Fund VI continues the New York-based manager’s strategy of investing in US non-sponsored companies with less than $100 million in revenues that have not yet received institutional investor capital and require more capital to achieve scale in their fundamental growth or emerge from a special situation.
Sources further mentioned that the fund, which does not use leverage, is targeting net internal rates of return of 11-14 percent. The firm said it will continue to be opportunistic across current sectors of focus like workforce housing, transitional farmland, telecom/data center/media, specialty finance and financial services. It also plans to explore more transactions in healthcare services. The loans typically have a duration of 12-24 months.
The “strong interest” in the fund expressed by investors “underscores the available opportunity we are accessing” in the non-sponsored, lower mid-market, Paul Lisiak, Metropolitan’s chief investment officer, said in the announcement. Texas Tech University, a cornerstone investor in Metropolitan’s Fund IV and Fund V, committed capital for Fund VI. Fund V closed in 2018 and raised $172 million on a target of $200 million. It has made 18 investments totalling $170 million to date.
Metropolitan decided in late February or early March to defer the offshore closing until the third quarter because of the coronavirus. Metropolitan, which already had a lot of interest in the fund before the virus, has seen a pickup in conversations with prospective limited partners since the onset of the pandemic.
Lisiak said Metropolitan had been conservative in its portfolio construction for its funds over the past two years, and faded areas that were “very hot” before the onset of the virus, such as certain focuses of specialty finance and Main Street lending, despite the firm’s prior level of activity in those areas.
Lisiak said he is “quite concerned” about crosswinds that have appeared in the macro environment, which are affecting different sectors in unique ways. But he continues to be optimistic about certain sectors that offer utilitarian value to consumers and businesses. The firm is also reviewing opportunities related to expected deleveraging by consumers and small businesses.
As for the market in general, Lisiak said the firm is keeping a close eye out for “potential credit market problems that could ensue in the coming quarters as private companies that have rated debt begin to report.” While the firm does not invest in this part of the market, he believes there will be interesting data points regarding capital expenditures and reinvestment in growth initiatives by highly leveraged businesses.
Lisiak said he has heard many concerns from the LP community about the likelihood of a big unwind in highly-leveraged sectors.