Balance Point Capital plots transition of third partner amid Fund III fundraise

Balance Point Capital is targeting $300 million with a $400 million hard cap for its third flagship fund, as one of its three partners prepares to transition into an advisory role, documents from Connecticut Office of the State Treasurer show.

At some point in the next two years, Lance Sauerteig plans to step down from his full-time role at the firm. Sauerteig will transition to an adviser, according to the documents, which also said he is still devoting around 15 percent of his time to a wealth-management and advisory business he operates outside Balance Point.

The firm plans to add a third partner to sit on its investment committee “at the appropriate time,” a memo prepared by Connecticut staff says. The memo adds that it had “gained a comfort in the measured and thoughtful manner in which the firm’s partners have managed [organizational] changes to date.”

Managing Partner Seth Alvord and Partner Justin Kaplan hold the other two seats on the firm’s investment committee.

The Westport, Connecticut, firm also is planning to bolster its internal operations and infrastructure, particularly as it relates to the administration of its investment funds and financial reports, the staff memo shows.

A memo StepStone Group prepared for Connecticut noted that the firm still uses Excel and QuickBooks for its fund accounting.

“It is debatable whether these systems are appropriate for fund accounting, considering there is no external fund administrator to rely on,” according to StepStone.

Connecticut Treasurer Denise Nappier, the sole trustee of the state’s retirement system, is considering committing up to $50 million to the fund, according to a press release.

Balance Point Capital’s investment strategy enables the firm to invest throughout a company’s capital structure.

Case studies included in a presentation Balance Point prepared for Connecticut featured unitranche, term-loan, structured-equity and equity investments in lower-middle-market companies.

Typical Balance Point portfolio companies generate between $3 million and $30 million of Ebitda, according to the presentation. The firm underwrites its debt investments to yield at least 12 percent.

Balance Point Capital Partners I, a $126 million 2011 vintage fund, was netting a 13.1 percent internal rate of return and 1.5x multiple on invested capital as of Dec. 31, according to the presentation.

Fund II, which raised $230 million in 2015, was netting 18.1 percent with a 1.3x multiple as of that date.

Sauerteig and the firm did not respond to a request for comment.

Action Item: For more on Balance Point Capital, visit www.balancepointcapital.com