News & Analysis

Dyal’s new credit vehicle: A look under the hood

Neuberger Berman's GP stakes unit has moved into private credit. We look at its new fund's loan terms, expected performance and opportunity set.

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Dyal Capital Partners, Neuberger Berman’s GP stakes unit, has branched out into private credit.

Dyal collected $1 billion in January for a dedicated fund and is expected to seek at least $5 billion, according to the Wall Street Journal. The firm has already completed several loans.

Here’s what we know about the new fund:

Loan terms

Dyal’s fund is open-ended permanent capital and its loans are intended to last for up to 20 years, a source with knowledge of the vehicle told sister publication Private Equity International. Loan-to-value ratios typically range from 5 percent to 8 percent for managers valued at $3 billion to $8 billion.

Credit is secured against a firm’s forward management fees and GP commitments.

The loans are not amortised; cashflows are generated by interest payments in the high single digits.

Performance expectations

The firm is offering investors access to unlevered or levered senior debt, the source added. The former class is expected to deliver 7 percent to 9 percent net returns, while the latter is targeting around 10 percent to 12 percent net.

Team

Dyal has appointed several executives with a credit background but sourcing and origination of both strategies will be performed by the same team, the source said. The identity of the new hires is unclear.

Opportunity set

The new fund will be geared towards its existing portfolio and new targets, according to the source. The firm’s equity funds target the 100 largest alternatives firms by assets under management, some of which are not willing to part with equity but may consider a loan.

Dyal expects to invest at least one-third of its private equity Fund IV, which is due to close on more than $8 billion later this year, and Fund V, which is expected to launch in 2020, into existing portfolio companies, the source added.

It comes amid concerns the GP stakes market is at risk of becoming oversaturated, according to PitchBook’s Raising the GP Stakes report.

Dyal Capital Partners declined to comment.