Twin Brook Capital Partners has soared above its target for its latest fundraise in what is one of the, if not the, largest lower mid-market direct lending fund yet.

The Chicago-based lower mid-market lender closed on $2.75 billion of equity commitments for its AG Direct Lending Fund III. The fund was originally targeting $2 billion and plans to invest in US-based businesses.

The vehicle is planning to operate a nearly identical strategy as Fund II and Fund I by investing in lower mid-market companies with between $3 million and $50 million in EBITDA, with a focus on companies that have below $25 million in EBITDA.

Fund II closed in 2017 with $2.3 billion in capital commitments across a commingled fund and separately managed accounts. It is expected to finish investing within the coming months.

Trevor Clark is the founder and managing partner at Twin Brook Capital Partners.

“I think our consistent and long-term focus on the lower mid-market is a differentiator among the most active lenders in the direct lending space,” Trevor Clark, the founder and managing partner at Twin Brook, told Private Debt Investor. “Many of our historical lower mid-market lending competitors have made the decision to move to the upper mid-market as a way to deploy larger amounts of capital.”

Fund III will invest in sectors generally, though Twin Brook has expertise in healthcare, financial services, insurance and technology sectors. The vehicle is looking for hold sizes of $25 million to $150 million on average and has begun deployment.

The fund received repeat as well as new investors.

Fund III received commitments from many US-based public pension funds including Texas Municipal Retirement System, $250 million, Santa Barbara County Employees Retirement System, $25 million, and the Maine Public Employees Retirement System, $100 million. The fund also received a commitment of $143 million from the North Dakota Board of University and School lands.

The vehicle is targeting a 6-8 percent net internal rate of return for the unlevered sleeve, according to Texas MRS pension fund documents. The levered side is expecting 9-13 percent returns.

Twin Brook offered investors a management fee discount if they participated in a first close, according to North Dakota BUS documents. At the time of the commitment in June 2018, the fee was estimated to be 65-70 basis points. The fund charges a 15 percent incentive fee over a 7 percent hurdle.

Clark contributes some of the firm’s investor base growth to the investment team’s longevity.

“One of the things I’ve seen investors continue to highlight is a manager’s historical experience in the asset class,” Clark said. “Investor due diligence has become increasingly focused on direct lending managers being able to prove their experience with managing a portfolio through a distress cycle.”

“The mid-market continues to experience a tremendous appetite for the asset class from both investors and lenders,” he continued. “While sustained demand of this type can negatively impact lending terms, the experienced market participants with dedicated direct origination capabilities should be positioned to continue to take market share and maintain high-quality credit documents.”

Twin Brook was founded in 2014 and has deployed more than $7.6 billion to borrowers since inception. Twin Brook is the mid-market lending arm of Angelo Gordon which has more than $33 billion in assets under management.