Neuberger Berman’s latest private debt vehicle doubles in size on interim close

The vehicle will deploy capital into the lower part of the capital structure, which comes as the firm anticipates a drift from buyouts to private credit.

Neuberger Berman Group has already smashed its fundraising record for its junior debt fund series, according to Securities and Exchange Commission filings.

The New York-based alternative asset manager has raised $1.58 billion for NB Private Debt Fund III on an interim close, already more than doubling the size of its $750 million Fund II, which closed in October 2016.

The firm declined to comment.

The fund series lends second-lien, mezzanine and unitranche loans to North American private equity-backed companies with EBITDA of $25 million-$250 million, according to an announcement after the close of Fund II. The firm also invests in first-lien debt, according to its website.

In September 2017, the firm closed a fund focused on secondary loan transactions: its $1.1 billion NB Private Equity Opportunities Fund, which invests in the secured and unsecured debt of sponsored businesses – mainly in transactions on the secondary market – a strategy that looks to capitalise on dislocations and inefficiencies in the credit markets.

In its outlook for 2019 released last week, Neuberger Berman noted that it expects “less appetite” for the buyout formula. Instead, investors will warm to private debt that can capitalise on turbulence in leveraged credit markets, as well as co-investments and focused strategies such as royalty investments.

According to PDI Perspectives 2019 – this year’s installment of our annual investor survey for private debt, private equity, private real estate and infrastructure – limited partners are most likely to participate in private equity co-investments, with 65.1 percent saying they would do so. For private debt, only 21.3 percent of investors said they planned to put money toward co-investments.

For private credit strategies, investors said they were most excited about direct lending, with 37.7 percent of limited partners saying they planned to increase their allocation to the strategy.

For more niche strategies, the appetite to increase their allocation was much smaller – investors planning to up their commitments to leasing and royalty investments were 6.2 and 4.6 percent, respectively.

Neuberger Berman oversees $315 billion and invests in equities, fixed income and alternative assets. The $82 billion of alternatives is across private equity and private credit strategies as well as hedge funds and insurance-linked strategies.