Many private equity investors are continuing to seek exposure to mezzanine funds as they look to maintain a diverse private equity portfolio and gain exposure to private debt, rather than solely equity-related funds such as buyout and venture capital vehicles.
Preqin’s Investor Intelligence database tracks 1184 active investors in private equity that have either previously invested in mezzanine funds or expressed a preference for doing so, accounting for nearly a quarter (24%) of the whole LP universe. North America-based investors have shown a particular preference for the fund strategy, accounting for 62% of all investors that consider mezzanine funds. Europe-based LPs account for a further 24%, with the remaining 14% based in Asia and Rest of World.
Pension funds form a large proportion of investors that consider mezzanine vehicles, with public pension funds accounting for 17% of the total and private sector pension funds making up a further 16%. Other investor types that have an appetite for mezzanine funds include foundations (12%), insurance companies (11%) and fund of funds managers (9%).
Importantly for managers raising mezzanine funds in the current climate, a sizeable 254 LPs have told Preqin they will be actively targeting or considering mezzanine funds within the next 12 months.LPs looking to allocate capital to mezzanine funds in the next 12 months are open to a range of regions, with three-quarters considering commitments to North America-focused vehicles, 63% to Europe-focused vehicles and half to the Asia-Pacific region. Interestingly 47% will also consider vehicles solely targeting emerging markets
International Finance Corporation (IFC) is one investor that has recently allocated capital to a mezzanine fund, committing $20mn to Gulf Credit Partners. The fund is Gulf Capital's debut credit and mezzanine fund and is targeting a broad range of industries in the Middle East, North Africa and Turkey.
With LP capital continuing to be scarce, it is reassuring for mezzanine fund managers on the road that a large proportion of the LP universe continues to view the fund strategy positively and will look to allocate capital in the coming year.