Monroe rounds up $560m for third direct lending vehicle

The alternative lender expects to reach a final close in the fourth quarter.

Monroe Capital is nearly three-quarters of the way to its $800 million target for its third direct lending fund, according to meeting materials from a southern California pension plan.

The Chicago-based credit manager has raised $560 million as of July, an investment memo from consulting firm NEPC to the Ventura County Employees’ Retirement Association showed. Monroe held a third close on that number last month, according to the investor documents. VCERA considered a $25 million commitment.

Monroe declined to comment on the fundraising.

The total officially collected is lower than the $650 million Monroe had expected to close on last autumn, due to delays in formally locking down the money, the source said; soft commitments and interest in the fund still exceed its $1 billion hard-cap. The firm did not want to hold multiple additional closes.

Monroe is charging a 1.5 percent management fee on invested assets and 17.5 percent carried interest, with hurdle rates of 7 percent and 5 percent for the levered and unlevered sleeves, respectively, the documents showed. Fund III will have a six-year life, four of which will be the investment period, with the option of two one-year extensions.

The fund, which will lend senior secured debt to both sponsored and non-sponsored companies with annual EBITDA of $3 million-$30 million, has made 14 investments so far. The average loan is $62.9 million and has 3.8 years until maturity. The average EBITDA of portfolio companies is $17.8 million with a 3.9x leverage, which did not include outliers, a Monroe investor presentation noted.

The levered and unlevered sleeves of Fund III will target a net internal rate of return of 10-14 percent and 7-10 percent respectively, according to an investor presentation.

Fund II consisted of three sleeves, which posted cumulative net internal rates of return of 13.4 percent for the onshore levered sleeve, 9.1 percent for the onshore unlevered sleeve and 6.5 percent for the unlevered offshore rate of return. The vehicle is midway through its investment period, which runs from 2016-20.

Fund I also consisted of three sleeves. Using the same metric as above, the onshore levered sleeve posted 14.2 percent, the onshore unlevered 9.1 percent and the offshore levered 10.7 percent. The vehicle’s investment period runs from 2014-2018.

Monroe manages $5.5 billion and, in addition to its Chicago headquarters, has offices in Atlanta, Boston, Dallas, Los Angeles, New York and San Francisco. It also manages collateralised loan obligations and a business development company, Monroe Capital Corporation.