Carlyle eyes middle-market lending with fund targeting $1.5 bln

Carlyle Group is on its way to securing a $150 million commitment from Fresno County Employees’ Retirement Association for a new middle-market credit fund, according to Verus memos released by the county.

Carlyle Middle Market Credit Fund, targeting $1.5 billion, has a three-year investment period and a seven-year fund term. The fund will charge a 1.25 percent management fee on drawn commitments, with Carlyle collecting 15 percent of the fund’s profits as carried interest over a 7 percent hurdle, the memo shows.

The fund will expand Carlyle’s direct-lending platform, which includes the firm’s business-development company, TCG BDC (formerly Carlyle GMS Finance). The fund will be used to make loans to sponsor-backed U.S. mid-market companies.

The vehicle will primarily invest in senior loans. Between 30 percent and 50 percent of the portfolio could be used for second-lien or unitranche facilities.

The new middle-market credit fund falls under the purview of Carlyle’s direct-lending business, which the firm has expanded in recent months after hiring former Canada Pension Plan Investment Board executive Mark Jenkins. Jenkins, who in September was named Carlyle’s head of global credit, led CPPIB’s acquisition of mid-market lender Antares Capital from GE Capital in 2015.

Carlyle also hired Craig Farr as a senior adviser to the credit platform in January. Farr was previously head of capital markets and credit for Kohlberg Kravis Roberts.

Carlyle’s mid-market lending platform, Carlyle Private Credit, is led by TCG BDC’s CEO, Michael Hart, and president, Jeffrey Levin. In March, Carlyle Private Credit partnered with Madison Capital Funding to provide unitranche financing in support of Pamplona Capital’s acquisition of Legacy.com.

More credit

Fresno County’s $150 million commitment to the fund is part of a $400 million allocation the $4.1 billion retirement system is making to Carlyle’s $29.4 billion credit platform, led by Head of Global Market Strategies Kewsong Lee.

Carlyle will also a manage a $150 million separate account comprised of senior secured loans for Fresno County, which is projected to yield 9 percent to 10 percent net of expenses. The retirement system will not pay a management fee on the separate-account commitment.

Fresno County will also allocate around $100 million over three years to an account with AlpInvest Partners, Carlyle’s fund-of-funds business, for investments in credit-oriented strategies like mezzanine debt. The retirement system expects its management fee for the AlpInvest account to be around 0.17 percentage point.

The new fund commitments should enable Fresno County reach its 8 percent target allocation for private credit in around 3 1/2 years. The system had a 2 percent allocation to private credit strategies as of Dec. 31. Its $80.5 million private credit portfolio was netting a 3-year return of 3.5 percent as of that date.

Action Item: Read the Verus memo: http://bit.ly/2o1A5JS

David M. Rubenstein, co-founder and co-CEO of Carlyle Group, attends a session at the annual meeting of the World Economic Forum in Davos on Jan. 24, 2014. Photo courtesy REUTERS/Denis Balibouse