Big Exit, Waterfall Structure Broadens Horizon For Debut Fund

The target for the fund is $400 million, though the source said demand for the fund could enable it to raise $600 million. The firm has not listed a hard cap on its offering materials, but its executives have told investors they won’t raise more than $600 million, the source said.

The buzz around the firm increased recently thanks to a very successful exit. The firm also piqued the interest of investors by employing the waterfall method of distributing carry, a practice common in Europe in which general partners don’t get to share carry until returning at least all invested capital. The Institutional Limited Partners Association has recommended that GPs embrace this structure.

On July 2, One Equity Partners agreed to purchase M*Modal Inc., a provider of clinical documentation services, in a deal valued at $1.1 billion. The Siris Capital team is the largest shareholder in the NASDAQ-traded company, having backed a predecessor company it then helped build while investing as the private equity arm of the hedge fund SAC Capital Advisors. The deal would return north of 3x the amount of capital the Siris Capital team invested on the part of SAC Capital, the source said.

“It’s another indicator of the types of deals that these guys are capable of,” the source said.

The New York-based firm has already locked up commitments from several blue chip institutional investors, including the New Jersey Division of Investment, the New York City Employees Retirement System and the Employees Retirement System of Texas.

Co-founders Frank Baker, Peter Berger and Jeffrey Hendren formed Siris Capital last year after leaving SAC Capital. Prior to joining SAC in 2007, the trio worked closely for 10 years at a buyout firm, Ripplewood Holdings LLC.

Another spin-out from Ripplewood, One Rock Capital Partners, is in the market, seeking $250 million for its debut fund.

Executives at Siris Capital could not be reached for comment.