HarbourVest brings first commingled mezz fund to market

  • HarbourVest targets $250 mln for debut mezzanine fund
  • Plans to charge 12.5 pct carried interest rate
  • Overall mezzanine fundraising soars this year

HarbourVest Partners is in the market with its first ever commingled mezzanine fund targeting $250 million, according to a limited partner who has heard the pitch.

HarbourVest is an investor in mezzanine debt, but has not had a commingled fund dedicated to the strategy until now. It’s not clear why the fund-of-funds manager decided to launch the fund this year.

Laura Thaxter, principal in marketing and client communications, didn’t respond to a request for comment.

“Despite the fact they’ve been mezzanine investors for years, the previous investments were co-invest and other fund programs,” the LP said.

HarbourVest Mezzanine Income Fund will have an eight-year term and a three-year investment period, the LP said. The fund will charge a 1 percent management fee on committed capital in years one through five, a 12.5 percent carried interest rate and an 8 percent preferred return.

These terms are below market rate for mezzanine funds, according to a separate LP who invests in the strategy.

The fund will make mezzanine investments primarily in small- to middle-market U.S. companies with enterprise values of less than $1 billion, according to a September report from HarbourVest’s listed affiliate HarbourVest Global Private Equity (HVPE). The listed firm committed $25 million to the mezzanine fund, the report said.

Mezzanine fundraising has picked up in recent years after experiencing a slump after the Global Financial Crisis. As of August, 20 funds raised $16.8 billion globally, according to Preqin. That compares to 32 funds that raised $9 billion last year and 43 funds that raised $17.4 billion in 2013.

The peak year was 2008, when 43 funds raised $29 billion, Preqin said.

Median returns of mezzanine funds have increased over the years, according to data from Pitchbook. For vintage 2013, the median internal rate of return was 13.23 percent, compared to 13.22 percent for 2012 and 10.5 percent for 2011, Pitchbook said. Vintage 2009 had a median IRR of 8.71 percent, Pitchbook said.

Action Item: See HarbourVest Global Private Equity’s September investment report here: http://bit.ly/1PEAomp

Photo: Brooks Zug, senior managing director and co-founder of HarbourVest Partners, speaks at the Buyouts East conference in Boston on March 25, 2015. (c) Buyouts Insider