Merced sets $800 mln target, charges 1.25 pct management fee

  • Target matches total raised through 2013 vintage fund
  • Merced raises $100 mln from Minnesota
  • Minnetonka firm’s 2007 vintage netting 24.1 pct IRR

Merced Capital is targeting $800 million for its latest flagship, matching what the Minnetonka, Minnesota, credit specialist raised through its 2013 vintage fund.

The target was disclosed in a Minnesota State Board of Investment memo Buyouts obtained through an open-records request. Minnesota re-upped $100 million to the firm earlier this month.

Hedge Fund Alert previously reported the fund could raise as much as $900 million. The firm did not respond to a request for comment.

Limited partners will pay a 1.25 percent annual management fee on committed capital during the fund’s four-year investment period, the memo says. Afterward, the management fee will fall to 1.25 percent of invested capital.

The general partner’s commitment will represent at least 1.5 percent of aggregate commitments. Merced will collect 20 percent of the fund’s investment profits as carried interest after LPs receive all their invested capital plus a return equal to or exceeding 8 percent.

Merced Capital will invest $5 million to $50 million in distressed opportunities, focusing on assets with strong downside protection, according to the memo.

“This range is too big for most individual investors and too small for most of Merced’s larger competitors,” Minnesota staff wrote. “Merced targets sectors and individual investments that attract less attention due to size, complexity or illiquidity.”

Minnesota committed $200 million across the firm’s three previous flagship funds. The firm’s 2013 vintage was netting a 6.3 percent internal rate of return through Sept. 30, Minnesota’s investment memo shows. Its 2007 vintage fund was netting 24.1 percent as of that date.

Merced Capital maintains an office in London in addition to its office in Minnetonka. The firm, founded in 1988, has $2.5 billion of aggregate capital commitments under management.

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Fans gather on April 21, 2016, outside First Avenue, the nightclub where U.S. music superstar Prince got his start in Minneapolis. Photo courtesy Reuters/Craig Lassig