Monroe closes its largest-ever fund with $4.8bn to invest

Monroe Capital has held a final close on its largest-ever fund with $4.8 billion to invest. The Chicago-based manager beat its $1.5 billion target by more than $800 million, according to a news release.

Monroe Capital Private Credit Fund IV, which was launched in October 2020, received $2.3 billion of commitments from limited partners, plus targeted leverage of $1.1 billion, the firm said. It also received $1.4 billion from separately managed accounts, including leverage. The latest fund has more than double the capital to invest of its predecessor, Monroe Private Capital Fund III, which closed in November 2018 on $2.3 billion.

Fund IV primarily targets private equity sponsored and non-sponsored lower mid-market companies with less than $35 million of EBITDA across multiple industries throughout the US and Canada. It will invest in private credit transactions originated and underwritten by Monroe and is focused mainly on senior secured loans and unitranche loans. Fund IV has already invested more than $1.7 billion in 90 transactions as of 31 March, 2022, the release said.

Monroe didn’t specify targeted returns, but sources close to the firm told Private Debt Investor in January 2021 that the fund was targeting returns of 6-9 percent, unlevered, and 9-12 percent, levered.

“The private equity market is expected to grow to $9 trillion by 2025.  That unprecedented growth will similarly drive demand for LBO financing,” Ted Koenig, chairman and chief executive officer of Monroe, told Private Debt Investor.  “This will create a perfect storm for the private credit industry,” he said, adding that Monroe sees this “as a permanent secular trend” and has “prepared for it by building a variety of niche private credit strategies to be responsive to the complex financing needs of the PE industry”.

Monroe said it received LP commitments from more than 300 investors in 17 countries. According to the PDI database, they include: Alameda-Contra Costa Transit District Pension Fund; Alaska Permanent Fund; Chicago Policemen’s Annuity & Benefits Fund; Fairfax County Retirement Systems; New Hampshire Retirement System; Oklahoma Tobacco Settlement Endowment Trust; Public Officials Benefit Association; and Ventura County Employees Retirement Association. Monroe also said it has secured term credit facilities to complement its available capital.

“The low interest rate and inflationary environment… has led many investors to seek safe floating rate yield to drive investment returns,” Koenig said in the release. He added that Monroe continues to leverage its platform to provide unique access to niche areas within the middle market.

Zia Uddin, Monroe’s president and co-portfolio manager, institutional portfolios, said that “the highly fragmented and fertile nature of the lower middle market continues to offer long-tenured, skilled investors an advantage in generating above-market returns”.

Monroe had approximately $14 billion in assets under management as of 1 April.