AlpInvest nixes mezzanine fund in favor of managed accounts

AlpInvest Partners has stopped raising a mezzanine fund that had been targeting $500 million in favor of building separate accounts with select investors, according to people with knowledge of the fund.

AlpInvest, backed by The Carlyle Group, launched AlpInvest Mezzanine Opportunities Fund V last summer. It’s not clear if the fund raised any money.

Discussion with investors led the firm to move away from the commingled fund and into a managed account strategy, according to one of the people. AlpInvest has secured commitments for the mezzanine platform through managed accounts and continues to seek new ones. It’s expected the firm will collect more than $200 million in commitments through managed accounts for mezzanine, the person said.

The fund was targeting mezzanine investments as well as buying secondary stakes in mezzanine funds on an opportunistic basis, one of the sources said.

AlpInvest’s mezzanine business is run by the co-investment team, which includes Richard Dunne, Rob de Jong, Sander van Maanen and Erik Thyssen. Another top executive on the co-investment team, Thomas Spoto, left AlpInvest earlier this year and joined Goldman Sachs. Spoto co-led co-investments at AlpInvest along with Dunne.

AlpInvest had a mezzanine program well before it was acquired by Carlyle in 2011. It’s cumulative commitments to mezzanine funds as of 2015 totaled $3.6 billion, according to the 2014 annual report.

Carlyle, meanwhile, has raised mezzanine funds on its own. Carlyle Mezzanine Partners raised two funds: $436 million in 2006 and $554 million in 2009. The firm has also raised energy mezzanine funds, collecting $1.38 billion for the first fund in 2011. Fund II, which is targeting $2.5 billion, has raised at least $2 billion, according to a recent Dow Jones report.

Carlyle Mezzanine’s Fund I has generated a 20.4 percent net internal rate of return and a 1.17x multiple since inception, according to a December 2014 report from the Pennsylvania State Employees’ Retirement System.

It’s not clear why AlpInvest had trouble raising capital for its mezzanine fund, but mezzanine fundraising in general experienced a steep decline last year. Globally, 32 mezzanine funds collected $9 billion in 2014, down sharply from from 43 funds that raised $17.4 billion in 2013, according to Preqin. Mezzanine fundraising peaked in 2008, when 43 funds raised $29 billion, Preqin found.

Fundraising has bounced back this year. So far, 20 mezzanine funds have raised $16.8 billion, Preqin said.

“The attractiveness of mezzanine is cyclical,” said one private debt market professional. Traditionally, the best times to invest in mezzanine debt have been a few years after a recession, the person said.

“The best companies can avoid mezzanine debt by going with unitranche or raising money that’s more flexible as second lien debt,” the person said.