With senior lending moving upstream, investment banks have been jumping into the mezzanine business. The latest investment house to take the plunge is New York Life Investment Management. Even with more than $172 billion in assets under management, New York Life Investment Management Mezzanine Partners LP, a $475 million fund that held its final close in September, is the firm’s first foray into the world of mezzanine financing.
New York Life Capital Partners (NYLCAP), the private equity arm of NY Life and the manager of approximately $3 billion in assets, is joining a list of firms raising funds of this size including Kelso & Co.’s $400 million mezzanine fund and The Carlyle Group’s fund of the same size, which is looking to make its first close later this year. Looming large on the radar screen is The Blackstone Group’s $1.2 billion mezzanine vehicle and Goldman Sach’s $2.7 billion mezzanine fund that held its final close just a few weeks ago (see Buyouts 9/8/2003 ).
“This is an attractive market for mezzanine investing, and creates a fantastic opportunity for us to fill the financing gap and for us to earn attractive risk-adjusted returns,” said Tom Knoff, a principal with NYLCAP, the private equity arm of NY Life and the manager of approximately $3 billion in assets.
NYLCAP’s most recent fund had only two closes-its initial of $245 million close in September 2002, and a $230 million final close just last month. Aside from a hefty allotment from NY Life’s coffers, the firm enlisted the financial backing from 10 limited partners. “The fact we were able to attract 10 LPs to a first-time fund points to our strategy,” said Knoff. “We’re looking for returns in the 18%- to- 20% range.”
To date, the fund has invested $125 million in eight transactions, and shoots for an average of $25 million per investment. Knoff said the firm plans to invest the balance over the next three to four years.
According to Knoff, the firm consistently has eight to 10 deals in the hopper, but most don’t pass muster. “They fall out for various reasons, such as inapposite pricing, or the overall projected return on investment,” he said. “Both the interest and the pricing are obviously very important. And quite frankly not all the deals we look at under the microscope are well-structured.”
Like many firms on the finance side of the aisle, NYLCAP has a generalist approach, looking for deals in many sectors, searching for those where a buyout can add value. And like many firms today, NYLCAP will avoid funding in the technology sector.