Mezz funds take centre stage

Successful fund closes on both sides of the Atlantic this week reflect a growing focus on mezzanine opportunities.

Mezzanine investment funds are generating increasing interest among LPs as they are seen to be well positioned to capitalise on current market conditions.

Michael Powell, head of alternative assets at the £23 billion (€26 billion; $37 billion) Universities Superannuation Scheme, recently told sister magazine Private Equity International that mezzanine strategies are among the pension’s key areas of investment for the coming year. “Mezzanine is cyclical but right now it’s interesting, particularly in the small- to mid-sized space,” he said. “The very large companies have access to the high yield bond market and some bank financing, but at the small end companies are being crowded out.”

Mezzanine is cyclical, but right now it's very interesting, particularly in the small- to mid-sized space.

Michael Powell

Powell is not alone among LPs, as reflected by two recent fundraisings on either side of the Atlantic.

Nordic Mezzanine this week closed its third mezzanine fund on €320 million.

The firm began fundraising before the financial markets crashed in the second half of 2008, but did not have to lower its target, Pekka Sunila, Nordic Mezzanine executive director, told PEO. Nordic Mezzanine Fund III is 30 percent larger than its predecessor, which closed in 2003 on €240 million.

The fund attracted commitments from institutional investors across the Nordic region and continental Europe, including three of Finland’s largest insurance groups: Pension Fennia, Tapiola Mutual Pension Insurance Company and Varma Mutual Pension Insurance Company. Nordic Investment Bank, a development finance institution, also committed.

The fund invests in mid-market buyouts and expansion capital throughout the Nordic region, German-speaking Europe and Benelux, and has so far completed one deal. 

In the US, Chicago-based mezzanine specialist Prudential Capital Partners, recently closed Prudential Capital Partners III with capital commitments totalling $965 million, surpassing its $900 million target.  Prudential Capital Partners is the mezzanine business affiliated with New York-listed insurance group Prudential Financial.

Fund III will follow the same investment strategy of its predecessors, investing between $10 million and $100 million in acquisitions, leveraged buyouts, recapitalizations, and growth capital in North American businesses.

An in-depth interview with ICG, Europe’s largest provider of mezzanine capital to the buyout industry, will feature in the February edition of Private Equity International.