Portfolio Advisors raises $740m for junior debt

The PA Direct Credit Opportunities Fund II hit its original fundraising target, and has invested 30% of its capital.

Portfolio Advisors has closed its latest junior debt fund on its target of $740 million, the company said on Tuesday.

The Direct Credit Opportunities Fund II has invested over 30 percent of its capital in 10 companies as of 18 April, according to a statement.

The PADCOF II provides junior debt to US mid-market firms, in the form of – among other investments – second lien loans and senior subordinated notes related to buyout, recapitalisations or growth equity transactions. The financings include private equity sponsors.

The undisclosed existing and new investors to the fund included pension funds, insurance companies, foundations, endowments, family offices and high-net-worth individuals in the US and globally.

This list includes Newport Private Wealth, a Canadian investment firm, which has a commitment in the fund valued at $2.5 million, according to the firm’s latest annual report.

Brian Murphy, managing director at Portfolio Advisors, told Private Debt Investor that investors are choosing mezzanine debt funds as a less risky high-return investment compared to buyout funds.

“Investors are thinking about where we are in the cycle,” Murphy said. “And at this play in the cycle, with buyout fund returns reaching 10 to 15 percent, mezzanine funds are a very attractive investment because you can generate those returns but with a contractual coupon.”

The PADCOF II is the first fund raised by the Portfolio Advisors’ direct credit investment team, the former DLJ Investment Partners team, which Portfolio Advisors acquired from Credit Suisse in December 2013.

On top of mezzanine debt, Portfolio Advisors also manages funds of funds like the Portfolio Advisors Credit Strategies Fund, which raised over $183 million in capital, PDI data shows.