VSS closes hybrid finance fund at $530m

The firm’s latest structured credit vehicle hit its hard-cap and will back businesses in healthcare, education and business services.

New York-based investor VSS Capital Partners has held a final close on its latest structured credit fund, providing debt and equity solutions.

The fund, VSS Structured Capital Fund IV, hit its hard-cap of $530 million, beating its initial $400 million target. It attracted a range of investors, mainly in the US but also from Europe, Singapore and the Middle East. LPs included insurers, pension funds, foundations and family offices.

The vehicle has a five-year investment period and typically makes investments of between $15 million and $50 million into firms with an EBITDA of $3 million to $15 million. It specialises in the healthcare, education and business services industries.

The fund aims to generate an IRR greater than 20 percent, with debt accounting for a return of around 10-12 percent.

Structured credit can enable firms to access equity financing without giving up such a large stake in their business, and VSS is mostly active in the lower mid-market which finds it more difficult to access bank and equity capital.

Jeffrey Stevenson, managing partner at VSS, said: “The current inflationary and recession-prone market environment bodes particularly well for structured capital funds, given the dilutive nature of many equity-only solutions that become less attractive in recessionary environments.”

Many firms are seeking finance for acquisition activity given lower valuations as a result of a global economic slowdown.