Firm: Summit Partners
Fund: Summit Partners Credit Fund
Target: $300 million
Amount Raised: $520 million
Placement Agents: Eaton Partners LLC, Amherst Securities Group LP
Tom Roberts, managing director at Summit Partners, told Buyouts that the fund will give the firm another financing alternative to offer the companies that it invests in. “There was an opportunity to take Summit’s historical outreach model, calling on entrepreneurs, and apply that to credit,” he said.
The fund represents the arrival of an additional strategy for the firm to pursue. It will be managed in Boston by Todd Hearle and Jamie Freeland, managing directors, who joined Summit Partners in 2010. The two men previously worked for Guggenheim Investment Management in the leveraged credit investment team.
“We always felt there was a demand in the market for originated private credit for the companies we were calling into. We just didn’t have the capacity to address those needs,” Roberts said.
Like its core private equity fund and existing mezzanine program, the new credit fund will target companies with $10 million to $50 million of EBITDA, Roberts said. “When you get above that, companies’ options broaden pretty dramatically.”
The firm already has made five transactions for the new portfolio. Roberts estimated the fund would make 10 to 20 additional investments, probably in the next 24 months. He said the fund will have a shorter term than an equity fund and will be able to redeploy capital for the next two years on loan prepayments. After that, cash will be repaid to investors
Several public pensions have already disclosed their commitments. They include the Louisiana Municipal Police Employees’ Retirement Fund and the Texas County & District Retirement System, which each committed $40 million, and the Louisiana School Employees’ Retirement System, which committed $25 million, according to the Buyouts database of LP commitments.
Investors also include private pensions, endowments and foundations, insurance companies, funds of funds and family offices, Hearle said.
Summit Partners, founded in 1984, most often makes minority investments in well-run profitable private companies with rapid organic growth. It launched its first subordinated debt fund in 1994. The firm, with offices in Boston, London, Palo Alto, Mumbai, has raised 17 equity and credit funds with combined assets of nearly $15 billion.
But in entering the senior credit market, Summit Partners is arriving in a space that has become increasingly crowded. In July, for instance, Babson Capital Management LLC announced its return to senior lending with the backing of its corporate parent, Massachusetts Mutual Life Insurance Co., and Crescent Capital Group raised nearly $1.5 billion for mid-market lending, its first significant fundraising since it split in 2010 from TCW Group.
And just this week, Kohlberg Kravis Roberts & Co., which last fall raised $1 billion for its first mezzanine fund, said it had formed a $300 million joint venture with Stone Point Capital LLC to provide capital market services to mid-sized companies.
Roberts said he was unconcerned about the competition. “Supply and demand in this space are so meaningfully out of balance there are tremendous opportunities,” he said, largely as a result of the financial crisis that caused banks and other lenders to flee the highly leveraged business, and regulatory changes that will restrict their return. “You could have any number of $300 million, $500 million, $800 million funds and not be able to meet the demand for financing among these companies.”
Summit Partners worked with Eaton Partners LLC and Amherst Securities Group LP to place the credit fund, according to a regulatory filing.