Firms & Funds

Highbridge spinout HPS targets $8 bln for fourth mezz pool

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Highbridge Capital Management, HPS Investment Partners, private equity, pension fund, TRS Louisiana
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  • HPS employees bought HPS from Highbridge in 2016
  • Dyal Capital took minority stake in 2018
  • Firm collected $6.6 bln for Fund III

HPS Investment Partners is back with its fourth mezzanine fund, targeting $8 billion, Teachers’ Retirement System of Louisiana documents show.

Louisiana Teachers’ committed $100 million to HPS’s new fund. HPS’s previous mezzanine-debt fund raised $6.6 billion, the largest debt fund in 2016. Its second mezzanine fund closed at $5 billion in 2013.

HPS, formed in 2007 as a division of Highbridge Capital Management within JP Morgan Asset Management, was known as Highbridge Principal Strategies.

The principals and employees of HPS acquired the firm from Highbridge and JPM in March 2016. Dyal Capital Partners bought a minority nonvoting stake in HPS in July 2018.

The firm is led by five principals: Scott Kapnick, Scot French, Michael Patterson, Purnima Puri and Faith Rosenfeld.

Mezzanine funds like HPS’s have become an important source of capital for PE firms and others looking for creative, flexible capital solutions. Mezzanine strategies include leverage for buyouts, acquisitions, refinancings and growth opportunities.

Ninety percent of HPS’s latest fund will be invested in unsecured mezzanine or junior debt securities, higher than its third fund’s investment of 72 percent in such securities. HPS’s second fund was 60 percent and its debut fund was 81 percent invested in mezzanine securities.

The fund expected to negotiate strong covenants and call protections for credit protection, Louisiana Teachers’ documents said.

HPS’s latest fund will target 30 to 40 investments in mid- to large-cap companies with enterprise values of $500 million to $5.5 billion. HPS invests across sectors and targets between $75 million and $800 million in any transaction.

The company had invested a total of $13 billion in 82 companies through its private-credit platform. Last year it led an investment of $750 million in NFP, an insurance broker and consultant, a Madison Dearborn portfolio company. It also backed Waste Industries with Equity Group Investments in 2017.

HPS’s third fund produced an internal rate of return of 12.8 percent, Fund II’s IRR was 17.7 percent and its debut’s IRR was 5.4 percent as of June 30, 2018, pension documents said.

HPS had $47 billion in AUM at January 2019.

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