MGG reports 13.8% gross unlevered returns – exclusive

MGG Investment Group has revealed a 13.81 percent gross unlevered IRR on deals the firm has made since its founding in January 2015.

Taking leverage into account, the returns are at 18.46 percent on a gross basis, according to an investor letter obtained by PDI.

The firms was set up with $200 million in capital from Frank McCourt, a US investor and real estate mogul. The management firm is now seeking third-party capital with help from its placement agent Park Hill Group.

MGG’s list of transactions in its first-quarter letter showed 11 loans made to a variety of companies across industries overt the past two quarters. The investments included companies in software, online media, gaming, sports, entertainment, telecommunications and advertising, among others.

Of the 11 showed, MGG led eight. It was a co-lead on one online advertising loan and a participant on two other loans in gaming and media advertising. The investments ranged in size from $5 million to $58 million. Coupons were between 8 percent and 11.1 percent, with most bearing a 1 percent LIBOR floor.

The firm mostly works on non-sponsored lower mid-market deals where MGG executives think they can find more competitive advantage. Of the 11 deals cited, some were directly originated, some were sourced from banks, while one was a sponsor-backed deal.

MGG also reported three investments it exited in one apparel company and two loans made to a money remittance company for dividend recaps. The loan made to the Oklahoma apparel company had a 14.72 percent unlevered exit IRR. The two loans to Dinero showed 12.18 percent and 9.27 percent unlevered IRRs.

In his letter to investors, chief executive Kevin Griffin admitted that market conditions had been challenging, though he saw some of them as an advantage to MGG’s strategy.

He said investors frequently asked him where we were in the cycle. “My response is we are in the late stages of the game and from past experience, it feels very much like early 2007 – where the market is wobbly and wounded from many years of over exuberance and could fall over with a catalyst,” he wrote.

“Our experience tells us we are about to see some heartache. However, we are prepared at MGG since we always underwrite assuming a downside case and multiple points of exit. We expect 2016 to remain volatile, especially given that many of these aforementioned issues have not vanished but merely abated, and new ones including Brexit and the US presidential election, will continue to weigh on investors.”

Griffin was formerly a managing director and credit committee member at Highbridge Principal Strategies. Greg Racz, who serves as president and chief operating officer, previously worked at hedge fund Hutchin Hill Capital in a similar role. The duo, who started MGG together, worked at Octavian Advisors together in the past. The firm now employs about 11 people.

Outlining fundraising in the investor letter, Griffin said the firm had received capital from a large US insurance company and several high-net-worth individuals. MGG expects to hold a final close on its fund later this year.