FrontPoint Partners, an asset management firm owned by Morgan Stanley, has closed its first ever direct lending fund on more than $1 billion that will help finance mid-market private equity deals.
FrontPoint-SJC Direct Lending Fund (FSJC) focuses on providing senior secured loans to US mid-market companies with annual revenues of $75 million to $500 million and annual EBITDA of $7.5 million to $50 million. The fund is FrontPoint’s largest ever, and received commitments from domestic and international pensions funds, endowments, foundations, family offices and high net worth individuals.
To date, FSJC has provided approximately $165 million in loans to a number of private equity-backed manufacturing and distribution companies.
FrontPoint launched the fundraising process in March 2010 with the intention of providing financing to mid-market companies struggling to secure financing from lenders that had either exited the direct lending business or moved toward larger borrowers.
“[Mid-market businesses] simply cannot get the amount of capital they need from conventional financing sources as a result of [the downturn],” FSJC founder and portfolio manager Steve Czech told PEO. “We're filling the need that we knew was out there, we just had to wait until we had the capital to be able to address it.”
Czech, a former managing director at independent asset manager Gottex Fund Management Holdings, joined FrontPoint in January 2010 to manage the new fund.
Mid-market lenders such as GE Capital, the financial services unit of US-based conglomerate General Electric, were forced to slow their business down in the wake of the financial crisis, as did CIT Group, which received a $3 billion rescue package in the summer of 2009 in order to avoid collapse.
“There’s a dearth of providers of cash flow [loans] that these private equity funds need, and we’ve had great deal flow coming from that source, because the conventional banks or CLOs who used to do that aren’t doing it anymore.”
FrontPoint sources its own deals, calling on a number of different channels of deal flow, one of which is private equity. Morgan Stanley has been in the process of spinning off FrontPoint, after acquiring the hedge fund in 2006 for about $400 million. The status of the sale is not clear, though Morgan Stanley this week reported a $126 million charge from the sale of FrontPoint.
FrontPoint has approximately $4.5 billion in assets and commitments under management across single and multi-strategy vehicles. FSJC’s investment team is based in Greenwich, CT and has loan sourcing offices in Los Angeles and Chicago.