Monroe Capital has closed its latest private credit fund, surpassing its initial target by more than $500 million — and underscoring the popularity of the strategy.
The firm announced Tuesday that it has raised $1.33 billion for the Monroe Capital Private Credit Fund III, with commitments from more than 100 institutional investors. Monroe’s initial target for the fund, its 17th investment vehicle since the firm's launch, was $800 million.
“We’ve done this now for the last 14 years, in good cycles and bad cycles and in good economies and bad economies,” Monroe’s president and chief executive officer Ted Koenig said by phone Tuesday. “The institutional LPs have come to understand and appreciate what we do.”
The fund close comes at a busy time in the private credit industry. Institutions are pouring capital into the asset class in the hopes of diversifying their alternative investment portfolios and producing yield, Koenig said.
The fundraising process for Monroe’s third private credit fund began in late 2017, Koenig said. It took about six months to raise the onshore fund, which included capital raised in the United States, and a little longer to raise the offshore fund, he said.
Monroe’s target for the fund was $800 million, with a hard cap of $1 billion, according to Koenig. The firm decided to extend its hard cap to $1.33 billion to accommodate the number of new investors who wanted to access its fund, he added.
“Private credit has become a very hot asset class for institutional investors over the past few years,” Koenig said. “Institutions wanted to access our fund. There was a fair amount of pent-up demand for a Monroe fund.”
Interestingly, half of the institutional investors who committed capital to the fund were new to Monroe, Koenig said.
In June, the New Hampshire Retirement System made a $50 million commitment to the fund, meeting minutes show. A spokesperson from the system did not return a phone call seeking comment.
During the second quarter of this year, Alaska Permanent Fund Corp. allocated $50 million to the fund, according to meeting minutes. A spokesperson for the fund did not return a phone call seeking comment.
In April, the Public School Retirement System of St. Louis decided to commit $11 million to Monroe. The fund had previously committed $10 million to its second private credit fund, meeting minutes show. Andrew Clark, the executive director of the fund, did not return a phone call seeking comment.
The Ventura County Employees’ Retirement Association committed $25 million the fund, meeting minutes from October show.
“We are a brand new investor with Monroe. However, we are very excited with prospects for the investment, and for a long-term relationship,” said the association’s chief investment officer, Dan Gallagher, in an email to Institutional Investor. “They have a great reputation as a top private credit manager, and terrific client service.”
The fund will have more buying power thanks to a secured-term credit facility, according to the firm’s announcement.
“We put one turn of fund-level leverage on the LP commitments,” Koenig said. “We added about a $1.2 billion of a warehouse credit facility from a lender.”
With leverage, the total investable capital in the new fund will be more than $2.5 billion, according to its announcement. According to Koenig, it will take between 18 months and two years to deploy the capital, depending on market conditions.
The capital will be invested in private credit deals originated and underwritten by Monroe. The firm will primarily focus on senior secured loans and unitranche loans (which combine senior and subordinated debt into a single instrument with a blended interest rate) to middle-market companies in the United States and Canada, according to its announcement.
Though Monroe’s private credit fund is closed to new investments, the firm is already raising another fund, Koenig said. It has started fundraising for its first opportunistic credit fund, with a goal of raising $1 billion, Koenig said.
The firm previously has invested in the asset class, but has never had a fund specifically dedicated to opportunistic credit, he said.
“We just started and we’ve got really good traction so far,” Koenig added, noting that he expects that fund to close during 2019.