Francisco Partners’ recent closing of its $2.2 billion credit fund represents a coalescence of several trends. Only its second credit fund, the oversubscribed fundraise represents the expansion of direct lending by funds traditionally focused on equity. The opportunistic fund is also exemplary of dealmakers’ rising interest in debt across the capital structure.

Francisco Credit Partners II clocks in at nearly twice its $1.25 billion target as the latest sign of investor interest in debt. Vista Credit Partners took in $2.3 billion for its third fund, announced last week, while H.I.G. Capital and Ares Management among many others have also raised credit funds this year.

Dealmakers appear to be girding for transactions across companies’ capital structures. Just over a third of respondents to TMF Group’s recent survey of debt funds plan to target senior debt, but about a quarter plan to invest across the capital structure. It’s a reflection that the mid-pandemic rush of refinancings at lenient terms have changed the typical risk/return profile of some firm’s debt instruments.

Enter specialist credit funds. Their sector-specific knowledge and deal sourcing pipelines are likely to prove instrumental to driving returns in a market increasingly saturated with credit providers.

The technology-focused Francisco Partners’ fund will target “across a wide array of situations ranging from supporting growth initiatives and traditional M&A activity to assisting with business model transitions and solving short-term liquidity needs.”

The fundraising bonanza continues!

Brandon Zero