Alaska Takes Plunge Into Mezz Investing

The Alaska Permanent Fund Corp. recently approved $500 million worth of mezzanine pledges, as the limited partner moves into a newly established area of investment for the state fund.

The LP recently approved a $250 million pledge to Audax Group’s third subordinated debt fund, Audax Mezzanine Fund III. The $750 million-targeted mezzanine fund has a mid-market focus, with an average investment size of $20 million. Elsewhere, Oaktree Capital Management received a slug of $250 million for its Oaktree Mezzanine Fund III, which has a target of $2.5 billion and is earmarked to help fund LBOs of companies with enterprise values from $150 million to $750 million.

According to board documents, the LP is looking to invest about 1 percent, or $340 million, of its assets in subordinated debt, an allocation similar in size to its distressed debt allotment. Last June, the Alaska Permanent Fund Corp. hired Oaktree Capital Management to manage a portion of its distressed debt allocation, committing $250 million to the firm’s OCM Opportunities Fund VIII LP.

In May, Alaska approved a resolution that includes a $500 million commitment to two advisors for its fiscal year 2010, which began July 1, 2009. The amount will be divided between HarbourVest Partners LLC, which oversees a separate account, and Pathway Capital Management, which manages two private equity portfolios for the LP.

The Alaska Permanent Fund’s target allocation to private equity is 6 percent, with a range of 1 percent to 11 percent. The actual private equity allocation stood at 2.5 percent, as of Jan. 31, 2010.