(Bloomberg) -- Toronto-based alternative asset manager Sagard Holdings Inc. has raised about $1.17 billion for its second private debt fund from institutional and strategic investors across the US, Canada and Europe. 

The Sagard Credit Partners II vehicle is targeting an internal rate of return of between 10-12%, well above the yield on the Bloomberg US Corporate High Yield Bond Index which scraped 8.49% Tuesday -- the highest since April 2020. 

The fund is focused on middle-market companies in the US and Canada that are owned by a family, entrepreneur or are publicly-listed, and will not use leverage, according to Sagard’s Chief Investment Officer Adam Vigna. It has already deployed about 11% of the capital raised. 

The market for private debt lenders in North America has expanded as uncertainty over inflation and global economic growth trigger term tightening across both the public capital and bank markets, according to Power Corp. of Canada’s Sagard.

“Equity market solutions are closed for a lot of companies today and the banks who are already conservative, they’re even more conservative,” said Vigna, adding that the fund’s target market was already under-served pre-Covid.

“We’re seeing a ton of very interesting opportunities today in our business,” he added. “A lot of that is due to the volatility that’s going on in the market.”

Just like its predecessor -- Sagard Credit Partners I -- the new investment vehicle will not provide financing to private equity-owned firms, allowing it to obtain higher returns with lower risk due to tighter covenants and debt ratios, according to Vigna.

“We get lower leverage, we get better returns and we get better credit documentation,” he said. “We don’t do covenant-lite to sponsor backed deals.”

Both existing and new investors piled into the new fund, including Beneva, B.R.K. Capital Inc., Civil Service Superannuation Board of Manitoba, Desjardins, Great-West Lifeco Inc., HDG Inc., Hewitt Group Inc., HOOPP Capital Partners, IGM Wealth Management, Investment Management Corporation of Ontario, Kruger Inc., Mackenzie Financial Corp., Optimum Asset Management and the City of Montreal, the asset manager said in statement seen by Bloomberg.

Sagard closed its inaugural $557 million SCP I fund in December 2018. It had aimed for a $1.1 billion raise for its SCP II vehicle. 

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