Twin Brook hauls in record $2.75 bln for Fund III

  • Fund II closed on $2.3 bln in in 2017
  • Texas MRS committed $250 mln to Fund III
  • Clark says firm’s long-term focus on lower mid-market is “differentiator”

Twin Brook Capital Partners soared above its target for its third fund, one of the largest lower mid-market direct lending funds raised to date.

Private Debt Investor, a Buyouts affiliate publication, was the first to report the news.

The Chicago-based lender closed on $2.75 billion of equity commitments for AG Direct Lending Fund III. The fund, which originally targeted $2 billion, plans to invest in U.S.-based businesses.

The vehicle will operate with a nearly identical strategy as Twin Brook’s first and second funds: It will target lower mid-market companies with between $3 million and $50 million in Ebitda, primarily focusing on companies with less than $25 million in Ebitda.

Fund II closed in 2017 with $2.3 billion in capital commitments across a commingled fund and separately managed accounts. That fund is expected to finish investing in the coming months.

“I think our consistent and long-term focus on the lower mid-market is a differentiator among the most active lenders in the direct lending space,” said Trevor Clark, founder and managing partner at Twin Brook. “Many of our historical lower mid-market lending competitors have made the decision to move to the upper mid-market as a way to deploy larger amounts of capital.”

Fund III will invest in sectors generally, though Twin Brook has expertise in healthcare, financial services, insurance and technology. The new vehicle is looking for hold sizes of $25 million to $150 million on average and has begun deployment.

The fund received repeat as well as new investors.

Fund III received commitments from many U.S.-based public pension funds including $250 million from Texas Municipal Retirement System, $100 million from the Maine Public Employees Retirement System, and $25 million from Santa Barbara County Employees Retirement System. The fund also received a $143 million commitment from the North Dakota Board of University and School Lands.

Fund III is targeting a 6 to 8 percent net internal rate of return for the unlevered sleeve, according to Texas MRS pension fund documents. The levered side is expecting 9 to 13 percent returns.

Twin Brook offered investors a management fee discount if they participated in a first close, according to North Dakota BUS documents. At the time of the commitment in June 2018, the fee was estimated to be 65 to 70 basis points. The fund charges a 15 percent incentive fee over a 7 percent hurdle.

Clark attributes some of the firm’s investor base growth to the investment team’s longevity. “One of the things I’ve seen investors continue to highlight is a manager’s historical experience in the asset class,” he said. “Investor due diligence has become increasingly focused on direct lending managers being able to prove their experience with managing a portfolio through a distress cycle.”

He continued: “The mid-market continues to experience a tremendous appetite for the asset class from both investors and lenders. While sustained demand of this type can negatively impact lending terms, the experienced market participants with dedicated direct origination capabilities should be positioned to continue to take market share and maintain high-quality credit documents.”

Twin Brook, founded in 2014, has deployed more than $7.6 billion to borrowers since inception. It is the mid-market lending arm of Angelo Gordon, which has more than $33 billion in assets under management.

This story first appeared in Private Debt Investor, a Buyouts affiliate publication. PDI Reporter Rebecca Szkutak can be reached at