Castle Harlan halfway to $1.5B fund

Castle Harlan has raised $750 million for its fifth fund and hopes to wrap up fund-raising by the end of the first quarter of 2010, according to sources familiar with the process.

The New York-based firm has been slogging toward its $1.5 billion target since it launched the fund in early 2008, though pre-marketing began in September 2007.

The firm had raised $684 million as of March. At least 34 investors are listed as limited partners in the fund, including the North Carolina Retirement Systems.

Castle Harlan declined to comment.

Like many funds in the market, Castle Harlan’s fifth effort faces a difficult environment, as cash-strapped LPs tighten their purse strings, even for re-ups. Castle Harlan faces the possibility of not only coming up short on its target, but of raising less than the $1.2 billion it raised for its previous fund, which closed in October 2003.

The firm’s fourth fund has so far an investment multiple of 1.37x and an IRR of 17.5%, according to the Oregon Public Employees Retirement Fund. Fund II, a vintage 1992 fund, and fund III, a vintage 1997 fund, have respectively generated investment multiples of 1.67x and 1.08x and IRRs of 27.1% and 2.3%, according to the limited partner.

Other past LPs have included the Illinois Municipal Retirement Fund, New Hampshire Retirement System, Ohio Public Employees Retirement System, Oregon Public Employees Retirement System and Teachers’ Retirement System of the State of Illinois, according to Thomson Reuters (publisher of PE Week), as well as corporate pensions from American Airlines, British Petroleum and Verizon.

Castle Harlan’s most recent exits have been winners, which could give it a boost as it seeks to wrap up fund-raising.

The firm scored 4.5x its invested capital and an 80% internal rate of return when it sold United Malt Holdings, a maker of malt for beer and liquor, to GrainCorp. Ltd.

In August 2008, it generated 3x its invested capital and a 90% gross internal rate of return when it sold AmeriCast Technologies, an Atchison, Kan.-based maker of complex steel castings.

But the firm’s portfolio has also included a number of companies that have landed on Standard & Poor’s “weakest links” list of companies at risk of default, including Ames True Temper, a maker of wheelbarrows and other lawn and garden products that Castle Harlan bought in June 2004 for $380 million, and Baker & Taylor Acquisitions Corp., a distributor of books, videos and music to public libraries that Castle Harlan acquired in July 2006 for $455 million.