Although buyout and venture funds typically attract the most attention from institutional investors in private equity funds, mezzanine funds continue to remain a popular investment preference for LPs looking to hold diverse investment portfolios.
Preqin’s Investor Intelligence database currently tracks over 4,000 investors in private equity funds, with 912 of those LPs having previously invested in a mezzanine fund or have stated a preference for such vehicles. Of these LPs with an appetite for mezzanine funds, 20% are public pension funds, with fund of fund managers and foundations both repressing 12% of investors interested in this fund type. Insurance companies account for 11%, whilst endowments and asset managers represent 8% and 6% respectively.
Geographically, North America is home to the largest proportion of LPs that have previously invested in a mezzanine fund or will consider doing so in the future, with over half (57%) of such investors based in this region. 28% of LPs with an appetite for mezzanine funds are based in Europe, 8% are based in the Asia-Pacific region, with the remaining 7% located across the MENA region, Latin America and the Caribbean and Africa.
Mezzanine funds have historically raised smaller amounts of capital compared to buyout funds, however, certain fund managers raising mezzanine funds have continued to prevail. Although the financial crisis and the continued volatility in the financial markets has hindered fundraising efforts of late, Blackstone Group recently closed its latest mezzanine fund after securing commitments of $4.1bn. GSO Capital Opportunities Fund II closed ahead of its original target size of $3bn and received significant commitments from a number of public pension funds, further demonstrating this investor type’s interest in mezzanine funds. California Public Employees' Retirement System (CalPERS) committed $250mn to the fund, whilst Florida State Board of Administration and New Jersey State Investment Council both committed $150mn. The Teachers' Retirement System of Louisiana committed $125mn and Oregon State Treasury also made a commitment to the fund of $100mn.
The recent closing of the Blackstone fund makes it one of the largest mezzanine funds to close in recent years and shows investors continued enthusiasm for this fund type. The largest mezzanine fund known to have been raised is GS Mezzanine Partners V, which held a final close at the beginning of 2008 after raising $13bn.