How is a mezzanine fund different from other private equity funds?
A mezzanine fund typically structures its investments as debt; frequently the debt is “junior” to a company’s bank debt but “senior” to the equity holders—hence the term mezzanine. As lenders, these funds charge above market rates of interest (typically between 12% and 14%) and require a full repayment of their capital within five years. In addition, mezzanine funds typically seek an ownership position in their portfolio companies. More traditional private equity funds invest true equity capital with no required “coupon” and no security interest in the assets.
