Bucking the stingy market, fast-growing Arcline hits hard cap on third pool

The fund closing is impressive at a time when most funds are taking longer to reach their goals.

Arcline Investment Management, seemingly impervious to the overall private equity fundraising malaise, closed its third fund in a matter of months on its $4.5 billion hard cap, a source told Buyouts.

The fund closing is impressive at a time when most funds are taking longer to reach their goals, some with no hope of hitting targets, and others that may have to delay bringing new products to the market.

The challenge is especially pronounced for newer managers, especially first-timers, that have been getting much less attention from limited partners. As uncertainty reigns, LPs are generally content to stick with their deepest relationships, eschewing forming new ones, especially with newer shops.

Still, Arcline beat its target and had most of the fund raised by January, after launching in September, the person said. The firm managed to add a few new LPs but mostly raised through re-ups, the person said.

Fund III is about 10 percent deployed, the person said. Its first investment was the November add-on of Hermetic Solutions Group to Arcline’s Qnnect platform. (The add-on company was actually bigger than the Qnnect platform, a source told Buyouts.)

Arcline created Qnnect with the acquisition last summer of Custom Interconnects, which it combined with Meritec and Joy Signal Technology. Qnnect provides specialty interconnects for high quality applications.

It’s this sort of focus that resonates well with LPs, sources have told Buyouts in past interviews about Arcline. The firm has a laser focus on industrials and industrial technology, targeting businesses with enterprise values and revenues of up to $1 billion, according to its Form ADV. Target companies could be operating in various sectors, including aerospace and defense, life sciences, medical technology and personal care.

“People are looking for something different from software and growth,” an LP told Buyouts last year.

The firm’s performance has been strong. Fund I, which closed on $1.5 billion in 2019, was generating a multiple of roughly 2x and a 49 percent net internal rate of return as of September 30, a source told Buyouts. The first fund is about 30 percent realized.

Fund II, which closed on $2.75 billion in 2021, was producing a 1.14x multiple and a 24 percent net IRR as of the same date. Still early in its J-curve period, Fund II is largely unrealized, the LP said.

Since inception in 2019, the firm completed 20 platform deals and 90 add-ons, Arcline said.