Montana makes Deerpath add-on commitment, continues focus on direct lending

The Treasure State’s pension system has made two commitments to private debt this year.

The Montana Board of Investments continued increasing its exposure to private credit funds – a focus in recent months – as it committed a $30 million follow-on commitment to Deerpath Capital Management’s latest vehicle.

The Helena-based limited partner, which oversees myriad Montana state trusts, upped its allocation to Deerpath Capital Advantage IV from an initial commitment of $30 million – made in the first quarter of this year – to $60 million, August meeting documents showed. Deerpath makes senior secured loans to companies with EBITDA of $2 million-$20 million in an array of industries, according to its website.

Fund IV is an unlevered vehicle targeting 6-9 percent returns, according to March documents from the Philadelphia Board of Pensions and Investments, which made a $25 million allocation to the vehicle. It charges a 1 percent management fee on committed capital and a 10 percent incentive fee with a 6 percent hurdle, according to Deerpath’s Securities and Exchange Commission registration.

Montana BOI has been digging into direct lending recently – upping its exposure to the strategy has been a stated goal in meeting documents since last year. Debt-related alternative investments are housed in the BOI’s private equity bucket, which allows for up to 25 percent of the category to be credit focused.

In the first quarter, the pension system also made a $75 million commitment to OCP Asia III, which focuses on direct lending in the Asia-Pacific region. The allocation was a re-up for BOI, as it invested $30 million in Fund II. The vehicle had raised $206.6 million when it held a first close in March.

Fund I – which had raised $865.18 million as of January, according to SEC regulatory documents – is an open-ended vehicle with a required three-year lockup and a 15 percent incentive fee, Orange County Employees’ Retirement System June 2014 meeting documents showed. It focuses on businesses with $25 million-$125 million of EBITDA.

In November, after BOI began sharpening its focus on direct lending, it noted that it received intense interest from credit managers. “Inbound contact [about the strategy] is robust and excessive at times, from investors seeking BOI capital,” meeting minutes from that month read.