Star Mountain closes first collateralised fund obligation with Evercore

Star Mountain Capital has held the final close of its first collateralised fund obligation. The rated vehicle gives insurance companies and other institutions a slice of the firm's US lower middle-market direct lending book. Star Mountain worked with Evercore on the deal, and neither side has disclosed the vehicle's size.

The structure, Star Mountain CFO I, holds loans drawn from the firm's direct lending funds across the lower middle market. Star Mountain says the underlying businesses sit in 'recession-resilient' industries, carry robust covenant protection, and have no direct exposure to software, real estate, or energy. Investors may enter as horizontal buyers or as vertical strip investors. The base includes blue-chip institutions and wealth management platforms.

Brett Hickey, Star Mountain's founder and chief executive, called the close a sign of growing institutional demand for rated access to US lower middle-market credit. The firm says it will keep building rated structures for its direct lending and secondaries strategies.

The final close arrives as private credit managers hunt for ways to widen their investor base. Insurers in particular have been shifting allocations toward private credit; Mercer recently ranked the asset class ahead of public fixed income for insurer portfolios. Managers who want those dollars need vehicles that fit insurance capital constraints. A CFO answers that by packaging a portfolio of loans into a rated security, letting insurers hold private credit without the operational burden of a drawdown fund.

Star Mountain is a smaller shop in a consolidating field, with roughly $5 billion in assets. CFO I is a test of whether a manager of that scale can attract institutional capital through a rated structure, and whether investors will pay for access to loans below the size bands that most large direct lenders target.

The firm counts more than 100 direct platform investments in the North American lower middle market since 2010. It has made 50 secondary or fund investments as well. Previous vehicles have skewed toward SBIC funds; the CFO marks a deliberate shift toward institutional-rated products.

Open questions remain. The vehicle's size is undisclosed, so the strength of that 'strong institutional interest' is hard to gauge from outside. The mix of horizontal and vertical strip buyers has not been broken out, and no credit rating is named. Star Mountain is staking a claim to the rated middle market just as investors demand more structure from private credit.

Direct lending volume in the US has cooled sharply. Managers are consolidating, selling portfolios, or raising structures that broaden their buyer base. For a lower-middle-market specialist, a rated CFO offers a way to keep lending without depending solely on committed fund capital. A downturn will test whether that recession-resilient label holds up.