News & Analysis

Brightwood plots $2bn-plus double fundraise with diverse businesses in mind

The firm provides credit options for small and medium-sized US businesses and earmarks some capital to be invested in diverse-owned companies.

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US-based debt provider Brightwood Capital Advisors is launching two fundraises this year focused on small and medium-sized companies and particularly diverse-owned enterprises, according to a source familiar with the matter.

First, the firm is close to launching its fifth flagship debt vehicle, which will target around $2 billion in commitments from pension funds, endowments and high-net-worth individuals and will earmark at least a quarter of capital for investments in diverse-owned businesses, the source told New Private Markets.

Investing in businesses generating EBITDA ranging from $5 million to $75 million, Brightwood provides senior secured and mezzanine loans to lower mid-market businesses in the US to facilitate recapitalisations, acquisitions and buyouts. The firm focuses on four sectors: business and healthcare services, franchising, transportation and logistics, and technology and telecommunications.

Brightwood’s previous flagship funds charged a 20 percent carried interest and set an 8 percent hurdle rate, according to regulatory filings. Commitments to Brightwood Capital Fund IV, which raised $1.2 billion, include $300 million from New York State Common Retirement Fund and $100 million from Pennsylvania State Employees’ Retirement System, according to data from affiliate publication Private Debt Investor.

The second fundraise Brightwood is launching is for its third small business investment company-focused vehicle. SBIC funds combine raised capital with funds borrowed from the federal Small Business Administration to make investments in qualified companies and offers tax breaks as incentives.

Brightwood’s first two SBIC funds invested almost exclusively in diverse and women-owned businesses. Brightwood Capital SBIC II launched in 2013 and raised $45 million, while Brightwood Capital SBIC I raised $75 million.

Damien Dwin, a Credit Suisse veteran, and Sengal Selassie, a former managing partner at the investment bank Cowen Investment Management, founded Brightwood in 2010. Last year, Dwin left the business to start the financial services company Lafayette Square.

Brightwood declined to comment for this story.