PRINT THIS PAGE Understanding the risk-adjusted returns of mezzanine
03/09/2001. Source:Mezzanine Management.
Mezzanine funds occupy a low-profile and little-understood corner of the private equity universe. This presentation from Mezzanine Management seeks to explain why mezzanine is growing as an asset class and why it is becoming increasingly popular with institutional investors. Mezzanine is a term associated with the middle layer of financing in leveraged buy-outs. In its simplest form, this is a type of loan finance that sits between equity and secured debt. As the risk with mezzanine financing is higher than with senior debt, the interest charged by the provider will be higher than that charged by traditional lenders, such as banks. However, equity provision - through warrants or options - is sometimes incorporated into the deal. Mezzanine funds are capable of inventing any number of sophisticated variations on this theme but essentially, and as its name suggests, the defining characteristic of mezzanine is that it ranks between debt and equity in terms of risk and reward.
Investing in funds that deploy these complex instruments might seem esoteric for investors moving into the private equity asset class. However, many of them are attracted to the returns available from mezzanine funds that can generate good absolute returns but carry much less risk than pure private equity funds.
In the presentation Mezzanine Management seeks to explain more about mezzanine, how it works in a deal structure and, finally, how it can provide good risk-adjusted returns for institutional investors.
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Copyright © Mezzanine Management UK Limited, August 2001
Mezzanine Management is an independent partnership advising funds investing mezzanine and private equity in middle market companies in Western Europe and the US. As the longest established dedicated mezzanine provider in Europe, the funds have invested nearly $1bn in over 55 companies across 11 countries.
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