Crestline seeks $500m for late-stage PE fund financing

The credit investment firm maintains the strategy has a growing market opportunity.

Crestline Investors is in market with its latest vehicle that can issue financing to seasoned, successful private equity funds and buy up stakes on the secondaries market, according to meeting documents from a California pension fund.

The Fort Worth, Texas-based firm is seeking up to $500 million for its Crestline Portfolio Financing Fund across a commingled fund and a separately managed account, materials from the San Bernardino County Employees’ Retirement Association showed.

The fund can issue debt or preferred equity.

The firm hopes to round up $300 million-$400 million for the pooled vehicle, while it already has $100 million committed from an unnamed investor for the SMA. A first and final close is anticipated on 1 February. SBCERA considered a $50 million commitment at a meeting on Tuesday.

Crestline declined to comment.

The return profile for the portfolio financing strategies is a net return of 12-15 percent with transactions lasting one to four years. Loan-to-value ratios for the fund’s investments would be less than 30 percent.

Terms include a 1.25 percent management fee on invested capital with a 12.5 percent carried interest fee over a 7 percent hurdle rate, according to SBCERA’s documents.

The six-year vehicle – a three-year investment period and a three-year harvest period with two optional one-year extensions – will invest at least 80 percent of its capital in OECD countries, Crestline’s investor presentation showed. Up to one-quarter of the fund can be invested in any one industry, and any individual transaction can be up to 10 percent of the vehicle.

The strategy will allow it to provide liquidity to investors via purchasing fund stakes and invest in mature private equity-style funds, meaning those that are past the investment and recycling periods and cannot make new follow-on investments.

More than $1 trillion of net asset value is held by private equity vehicles that fit that criteria, according to the investor presentation. In addition, a projected $823 billion worth of outstanding fund net asset value sits in five-year-old vehicles that are generating carried interest. That figure is expected to rise to $1.12 trillion by 2020.

Another opportunity for the strategy, according to the presentation, arises from the fact that private equity firms hold their portfolio companies longer. Some 36 percent of companies are held six years or more as of 2017, meaning many of them will need additional capital for follow-on investments, the meeting documents showed.

In addition to its Fort Worth headquarters, Crestline, which was founded in 1997 and manages $9.1 billion in assets, has offices in New York, Tokyo, London, Chicago and Toronto. In addition to the portfolio financing strategy, it also has platforms for special situations, hedge funds, direct lending and management of collateralised loan obligations.