(Bloomberg) -- Toronto-based alternative asset manager Sagard Holdings Manager LP has raised $555 million for its third private debt fund in a bid to take advantage of tightening bank lending conditions in North America.

The Sagard Senior Lending Partners vehicle is targeting an internal rate of return of around 9%, said Dev Gopalan, partner and portfolio manager at Sagard in an interview. The fund is focused on middle-market companies — mostly in the US and Canada — which aren’t owned by financial sponsors such as private equity firms, so their debt profiles are safer.

Power Corp of Canada’s Sagard is launching the fund as US banks tighten loan standards to businesses amid higher borrowing costs and weaker economic growth, according to latest Federal Reserve’s loan officer survey released early this week. In Canada, lending conditions have also tightened, according the country’s central bank survey.

The “economic headwinds make traditional equity and growth capital options more difficult to achieve,” said Gopalan in an emailed statement seen by Bloomberg News. “In turn, we have observed that companies – particularly those in the middle market – favour alternative financing sources, such as private debt.”

The fund got commitments so far for $315 million and an additional $240 million in a separately managed account with an undisclosed strategic partner, the statement said.

I.G. Investment Management, Ltd., Great-West Lifeco, Investment Management Corporation of Ontario and Portland Investment Counsel Inc. are among institutional investors in the fund. The vehicle has already invested in three middle-market companies, committing approximately $100 million, the statement said.

Private credit funds have grown significantly in size in recent years, often by gaining market share from investment banks that have historically dominated the leveraged loan market. The large sums of money they have been able to raise has left them well-positioned to win more business from banks that have grown more shy about lending to riskier companies.  

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