Crescent projects $1 bln final close for new direct-lending fund

  • Crescent raising levered, unlevered vehicles for new fund
  • Terms differ between vehicles
  • Final close expected in late 2017-early 2018

Crescent Capital Group is eyeing a final close on its latest $1 billion direct-lending pool in late 2017 or early 2018, New Hampshire Retirement System documents show.

The new fund will provide debt to U.S. companies operating in the lower middle market, typically backed by financial sponsors like Incline Equity Partners, Riverside Co and Tenex Capital Management, according to a fund document obtained by Buyouts.

Most companies will have EBITDA of $5 million to $35 million, the document says.

The Los Angeles firm is raising its second direct-lending fund across two vehicles, one of which will employ leverage at the fund level.

Using leverage will likely give LPs in the “levered option” a slightly higher net return in exchange for more risk, according to the fund document. Crescent’s levered vehicle is targeting a net return of 10 percent to 12 percent, compared with 7 percent to 9 percent for the unlevered fund.

The different vehicles also come with separate sets of terms for limited partners.

LPs in the levered fund will pay a lower annual management fee — equal to 0.75 percent of invested assets — while Crescent will collect 10 percent of the vehicle’s profits as carried interest. LPs in the unlevered fund pay a higher fee, as much as 1 percent of invested assets, but Crescent won’t collect carried interest.

Larger commitments to the unlevered fund also come with management-fee discounts. LPs who commit more than $25 million pay 0.95 percent and those who commit more than $50 million pay 0.9 percent. Allocations of $75 million or more come with a 0.85 percent management fee.

Crescent’s previous direct-lending fund, which raised around $680 million of committed capital, also included levered and unlevered vehicles. As of March 31, the levered fund was netting an internal rate of return of 9.7 percent and the unlevered fund was netting an IRR of 6.5 percent, according to presentation materials.

Bill Mendel, the firm’s external media contact, did not respond to a request for comment.

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A crescent moon is seen over Buenos Aires at sunrise on Sept. 6, 2010. Photo courtesy Reuters/Marcos Brindicci