06/20/2012

GB Merchant Plans $500 Million Debt Fund

GB Merchant Partners is in the market with its second debt vehicle.

The investment arm of Boston advisory firm Gordon Brothers began pitching the vehicle to investors in recent weeks. It wants to raise $500 million for the entity, dubbed 1903 Debt Fund 2. Hitting the target would nearly double the firmís asset size.

GB Merchant collected $175 million for its debut debt fund, which stopped taking capital in 2006. That vehicle is a hedge fund that invests in loans made to mid-size companies in a variety of industries. The firm manages another $485 million via 1903 Equity Fund, which takes majority and minority stakes in mid-size retail and consumer-products companies. The vehicles take their name from the year Gordon Brothers was founded.

Like its predecessor, 1903 Debt Fund 2 would invest only in the management firmís areas of expertise: junior secured loans of $10 million to $50 million.

There are a number of consumer-oriented companies in the firmís current debt portfolio, including Toys R Us and Urban Brands. It also has bought the debt of companies in the distribution, wholesale, industrial and real estate sectors. Most are located in the U.S., though the fund can, through its U.K. affiliate, use local currencies to invest in non-U.S. markets. The fund also has the capacity to buy debt on the secondary market.

The first 1903 Debt Fund posted a gross rate of return of more than 40% from September 2006 through April 2010, the latest month for which returns could be obtained.

The debt-investment group is run by Judy Mencher, who last year gave notice that, for personal reasons, she couldnít continue to manage the debt funds. Mencher will remain in her current role until a successor is found.

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