The Pennsylvania Public School Employees’ Retirement System’s board approved a $200 million commitment to Sankaty Middle Market Opportunities Fund II at its meeting last week, according to retirement system documents.
Sankaty Advisors expects to hold a first close on the vehicle on 28 June and a final close at some point in September, according to PSERS documents.
The vehicle is targeting between $1 billion with a $1.5 billion hard-cap for high-yield investments in the US and European mid-markets, according to PSERS documents. The firm will allocate between 60 percent to 80 percent of Fund II’s investments to North American deals, with the remainder going to Europe.
“The investment thesis for investing in the middle-market lending area of the high yield market is based upon a significant need for debt capital providers in the middle-market space where capital available to middle market companies has been constrained due to a reduced appetite from banks and hedge funds for junior lending,” according to a recommendation from portfolio manager Joseph Sheva.
“This financing need creates opportunities for non-bank lenders and investors to secure attractive risk/reward opportunities.”
Sankaty will invest between $10 million and $50 million per deal in companies with EBITDAs in the $10 million to $150 million range, according to documents. In addition to originating mezzanine and senior debt investments, Sankaty Middle Market Opportunities II will also make secondary purchases and conduct rescue financings. Michael Ewald, who leads Sankaty’s mid-market group, will lead the fund.
PSERS invested $250 million in Sankaty Middle Market Opportunities Fund I, a $900 million 2010 vintage vehicle that had generated a 15.1 percent net internal rate of return as of 31 December, according to state documents. The retirement system also invested in Sankaty Advisors, Sankaty Credit Opportunities Fund IV and Credit Opportunities Fund V.
In addition to its Sankaty commitment, PSERS’ board also committed up to $150 million to Crestview Partners III, $25 million to a Denham Commodity Partners Fund co-investment vehicle and $15 million to Incline Equity Partners III, according to its website.