U.S. one-hundred dollar banknotes run through a counting machine at a bank in Hong Kong, China. (Photographer: Paul Yeung/Bloomberg)

Cerberus to Plan $2.5 Billion Fund for Leveraged Loans

(Bloomberg) -- Cerberus Capital Management is raising a new fund for direct lending as investors push deeper into private credit.

The investment firm aims to bring in $2.5 billion, according to people familiar with the matter. Daniel Wolf and Keith Read will run Cerberus Levered Loan Opportunities Fund IV, with an eye on $100 million to $200 million deals, said the people, who asked not to be identified because the information is private.

Cerberus, founded in 1992 by Stephen Feinberg and William Richter, started out as an investor in distressed debt. Now with about $39 billion in assets, the firm has expanded into private equity and real estate businesses along with credit. Its direct lending strategy focuses on mid-size to large companies that are backed by private equity firms. The new fund is expected to have a first close next month. A previous fund raised $2 billion.

Direct lenders originate loans to companies rather than rely on investment banks to structure and distribute the debt. The lenders have grown rapidly over the past decade as institutional investors seek greater diversification of their credit portfolios. Managers of private debt funds raised about $110 billion of capital in 2018, according to data from research firm Preqin.

Regulators are looking more closely at these lenders, which are often referred to as shadow banks. A report from the Federal Reserve and other supervisory agencies in January said leveraged lending remains the most hazardous part of the $4.4 trillion portfolio of loans tied to multiple lenders, and that more of the risk is being transferred to non-bank entities.

Read more: Shadow Banks Disrupt Leveraged Loans in Blow to Wall Street

A representative for New York-based Cerberus declined to comment.

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