Sankaty Advisors launches fifth fund(3)

Bain Capital credit affiliate Sankaty Advisors is targeting $3.5 billion for its fifth fund, which will invest in performing and distressed bank loans, high yield bonds, mezzanine and special situations. 

The firm will invest between 40 percent and 60 percent of the fund in global distressed securities, 20 to 30 percent in capital solutions and 20 to 30 percent in special situations, according to documents from the Pennsylvania Public School Employees’ Retirement System. 

The firm will not be investing in two strategies included in previous funds, mid-market lending and structured products, according to PSERS documents. A majority of Fund V’s exposure will be to the US market, with European investments comprising between 30 percent and 40 percent of the fund.  

The six-year fund has a two-year investment period that can be extended by the general partner, with a management fee of 1.75 percent until the end of the investment period and a 1.5 percent fee on called capital thereafter. The fund has a 5 percent hurdle rate as well, according to New Mexico State Investment Council documents. 

Managing directors Jonathan Lavine, Kristin Mugford, Stuart Davies, Tim Barnes and Jon DeSimone sit on the fund’s credit committee, which vets any potential investments prior to their inclusion in the portfolio, according to SIC documents.   

The fund received commitments from both the New Mexico SIC and the PSERS last week, according to documents from the limited partners. 

Sankaty’s fourth fund, which raised $3.5 billion in 2008, was generating an internal rate of return of 20.3 percent since inception as of 31 March 2011, according to California State Teachers’ Retirement System documents. 

The firm has not engaged a placement agent for the fund. A call to a representative for Sankaty was not returned at press time. 

Mezzanine and credit lending have been increasingly popular investment strategies among private equity firms in recent years. Many LPs are attracted to the strategies because they target returns in the mid-to-high teens (Sankaty projects returns upwards of 15 percent on Fund V). The strategies also allow for a more regular distribution schedule that offsets j-curve issues seen in most private equity funds. 

Earlier this year, The Blackstone Group’s credit affiliate GSO Capital Partners closed its fund on $4 billion. New York Life Capital Partners held a final close on $980 million for its mezzanine fund in April. 

Sankaty was founded in 1998 and had $15.5 billion in assets under management as of January. The firm has offices in Boston, Chicago, New York, London and Luxembourg.