Silver Rock Financial aims to eclipse the $3.1 billion raised for its 2022 credit vehicle, its biggest fund by far since the firm emerged from former bond legend Michael Milken’s family office in 2016.
LPs are buying into the Los Angeles firm’s “tactical allocation” strategy of investing across all phases of the credit cycle and dipping into public bond markets during downturns.
Investors say Silver Rock’s independence from private equity makes it a “friendly” party when it comes to putting together private club deals with other private credit shops with PE ties. No private equity firm has an interest in Silver Rock, which invests solely in credit.
“Unlike many firms, Silver Rock is not affiliated with a private equity sponsor, a factor that is favorable to borrowers who prefer financing solutions from firms not deemed as
competitors,” Orange County Employees Retirement System Chief Investment Officer Molly Murphy wrote in a recent memo to the board. “Additionally, the team’s history with the Milken family office enables them to access unique dealflow from family offices, distinguishing them from other private credit funds.”
The $21 billion OCERS committed $150 million last month to the new fund. Silver Rock is charging a one percent management fee and 15 percent carry after an eight percent hurdle and shooting for an IRR of between 12 percent and 15 percent.
Silver Rock’s $4 billion target was disclosed in OCERS investment documents.
The 2022 vintage fund is about half deployed and early results show an IRR of 14 percent so far. The firm says 75 percent of its returns are expected to come from interest payments and the rest from increased value of the underlying loans.
The New Mexico State Investment Council this year added $150 million to its initial $300 million investment last year to a fund-of-one Silver Rock manages alongside its commingled funds, deploying the identical strategy.
Tom Lofton, New Mexico SIC credit chief, told the board that the investment “gives the ability to the portfolio to flex and to take advantage of episodic opportunities.”
Lofton says the “primary advantage” of the fund-of-one structure is the ability to recycle, or reinvest, New Mexico’s original commitment before harvesting the vehicle and distributing the proceeds. That cuts down on the administrative cost because Silver Rock charges management fees on the committed capital, not the total invested through recycling.
Silver Rock aims to turn New Mexico’s $450 million commitment into $675 million in investments.
Milken launched the family office in 2010. Eight of the 14 partners are minorities or women or both and they own a combined 55 percent of the firm, says Silver Rock’s private credit chief Vinay Kumar. Kumar recently increased his ownership stake and he is considered a key man in most of the LP agreements.
Kumar told the New Mexico SIC that Silver Rock finds “opportunities throughout the entire credit cycle and those opportunities will differ over time.”
Several private credit firms are raising funds for an economic downturn and a rise in distressed lending, including Starwood Capital Group.
“There’s a huge distressed cycle ahead of us,” Starwood Chair Barry Sternlicht said earlier this year at the Milken Institute Global Conference in Beverly Hills.
