Three US firms win $120 mn mezzanine fund mandates from Korea fund

The Public Officials Benefit Association (POBA) has selected Crescent Capital Group, Falcon Private Equity and GoldPoint Partners to invest a total of $120 million in U.S. mezzanine funds, which are expected to provide loans to small-sized U.S. companies and M&A financing to private equity firms.

POBA’s investment review committee on Oct. 14 approved of the three U.S. investment houses as its mezzanine fund managers, according to investment banking sources. The $7 billion saving fund for South Korean public officials will commit $40 million to each of the three firms.

Their investment strategy includes investing in medium-risk products such as convertible or exchangeable bonds issued by small to medium-sized enterprises (SMEs) in North America. To shore up investment returns, the three management firms may provide financing to private equity funds to help SME acquisitions.

The mezzanine fund managers were selected in limited competition, in the first such case for POBA. The savings fund expected closed-bid auctions would help build networks with global management houses, as it was diversifying into a broader range of overseas investments such as catastrophe bonds. POBA had sent requests for proposal only to 10 foreign investment firms after screening mezzanine fund managers in the United States, based on investment returns, fund operation period, fund formation timetable and other factors.

Crescent, Falcon and GoldPoint have built experience in mezzanine investments for over 30 years, and achieved about 7~10% of annual internal rate returns (IRR) even during the global financial crisis. In August, industry sources had said that POBA expects to earn10~15 annual returns from this round of mezzanine fund investments.

Last month, Los Angeles-based Crescent Capital also won a $50 million mandate from South Korea’s Government Employees Pension Service for overseas private debt investments. In August, the Teachers’ Pension said that it would commit $100 million to Crescent’s new mezzanine fund, Crescent Mezzanine Partners VII.

By Donghun Lee

Leedh@hankyung.com