Summit Partners closes credit Fund II at $1 bln cap

Summit Partners Credit Fund II closed at $1 billion, its hard cap, the firm announced on July 15. The fund surpassed its initial goal of $750 million. Investors participating in the fund include public and private pension plans, insurance companies, funds of funds, family offices, endowments and foundations, the firm said.

The Maine Public Employees Retirement System pledged $60 million to the fund, and Texas County & District Retirement System pledged $50 million, according to the Buyouts database of LP commitments.

The fund will be run from Boston by Managing Directors Todd Hearle and Jamie Freeland and Summit Partners’s 12-member credit team. Fixed income investing has been a part of Summit Partners’s investment approach since 1994, when the firm raised its first mezzanine fund. But historically, its funds were captive to its equity investing strategy, providing supplemental financing for its buyout deals. That changed when Hearle and his team joined the firm in 2010, with an eye toward more independent credit investments.

Summit Partners long has built its strategy around an active calling program, which makes about 20,000 outbound calls each year to potential targets, Hearle told Buyouts. But because many of those calls end up going to companies that do not meet the firm’s growth criteria, typically of EBITDA growth in the mid-teens, “those leads would be thrown back into the pond,” Hearle said. “Now they are referred to us.”

The Summit Partners credit team can invest in slower growth companies, and can look at opportunities outside the “power alley sectors” of technology, healthcare and business services that are the core of the firm’s equity strategy, Hearle said. “We’re a little more sector agnostic on the credit side.”

Summit Partners pursues a direct origination approach, typically seeking to lend $10 million to $50 million to companies generating EBITDA of $5 million to $50 million, he said.

The inaugural, 2011 vintage Summit Partners Credit Fund LP was returning 1.15x multiple with an 11.08 percent IRR as of Dec. 31, 2013, according to Texas County & District Retirement System.

Summit Partners said it has invested in more than 395 companies in technology, healthcare, and other growth sectors.

(Correction: Summit Partners makes about 20,000 outbound calls each year to potential targets; the original version of this article used incorrect numbers supplied by Summit Partners.)