New Jersey considers $200m to TPG lending fund

New Jersey’s $74 billion state pension system is considering locking in exposure to mid-market lending, proposing a $200 commitment to a business development company run by mega-firm TPG Capital.

The State Investment Council is considering the commitment, though there is no time frame for a decision, a pension spokesperson said.

“Staff believes that now is an opportune time to take advantage of the significant supply/demand imbalances of loans being originated to mid-market business,” investment staff said in a memo to the council. “Since 2008, traditional lenders to the mid-market … have left or significantly downsized their lending capacity due to balance sheet and regulatory issues, creating opportunities for lenders such as TPG Specialty Lending.”

BDCs are governed by rules the US Congress established in 1940 that allow investors to invest in private companies, generally in the US mid-market. BDCs must maintain an asset coverage ratio of at least 200 percent to borrow or pay dividends.

TPG is targeting between $750 million to $1 billion for the fund, according to pension documents. The firm will charge management fees of .25 percent of undrawn capital and .75 percent of aggregate capital drawn in any period before the fund it taken public. If the fund is taken public, the firm will charge management fees of 1.5 percent of gross assets.

All deal fees and related fee income generated from investments will stay in the BDC and accrue to the benefit of its shareholders, the documents said. “There will not be any fees paid to the advisor that are eligible to offset management fees,” the documents said.

The fund will make direct investments in senior secured and mezzanine loans, as well as equity of US mid-market companies. The vehicle will target companies with annual earnings before interest, taxes, depreciation and amortisation of $10 million to $250 million.