The Pennsylvania Public School Employees’ Retirement System approved a $100 million commitment to the Avenue Capital Group’s latest energy credit fund at its June board meeting, the pension plan said on Friday.
The Avenue Energy Opportunities Fund II targets distressed energy and utility companies that have tangible assets, primarily in North America, according to an investment memorandum from James Del Gaudio, portfolio manager for private markets at PSERS. It will make opportunistic investments in companies undergoing a restructuring or bankruptcy.
Del Gaudio had recommended in the memo that the board “continue its relationship with a high-conviction manager that is well positioned to take advantage of ongoing volatility in North American energy and utility markets”.
Fund II will target a 20 percent gross return and a 15 percent net return, which aligns with PSERS’ goal of producing double-digit net returns, he added. Though the firm “does not intend to employ fund-level leverage to enhance returns”, the document read.
PSERS declined to comment further, while Avenue was not immediately available to comment.
The fund is targeting $1 billion in capital commitments, as Private Debt Investor reported. The fund has a five-year life and a three-year investment period.
For first time investors in the fund series, the vehicle carries a management fee of 1.5 percent on drawn but unreturned capital during the investment period, after which the fee would slide to 1.25 percent on aggregate unreturned capital. Fund I investors who re-up will be charged a management fee of 1 percent.
The fund intends to build a portfolio of 15 to 20 core positions that require around $50 million to $125 million per deal, with holding periods of 18 to 24 months on average, the document shows.
The target allocations for the Fund II investments are 70 percent senior debt, 10 percent junior debt, and 20 percent “private market opportunities”, which include equity or assets from distressed companies purchased at auction.
Avenue manages several investment vehicles focusing on credit opportunities in the US, Europe and Asia with $10.3 billion in assets under management as of 31 March.