Castle Harlan Reaches Halfway Mark On Fund

Executives at Castle Harlan have raised $750 million for their fifth fund and hope to wrap up fundraising 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. Buyouts reported in March that the firm had raised $684 million. At least 34 investors are supporting the fund, including North Carolina Retirement Systems.

The firm faces the very real 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. Executives at Castle Harlan declined to discuss the fund.

Like many firms in the fundraising market, Castle Harlan has faced an uphill climb as limited partners have pulled back on commitment sizes. The firm’s fourth fund has so far an investment multiple of 1.37x and an IRR of 17.5 percent, according to the Oregon Public Employees Retirement Fund. Respectively, Fund II, a vintage 1992 fund, and Fund III, a vintage 1997 fund, have generated investment multiples of 1.67x and 1.08x and IRRs of 27.1 percent and 2.3 percent, according to the limited partner.

Other past investors have included the state pension funds of Michigan, New Hampshire and Ohio, 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 fundraising. The firm scored 4.5x its invested capital and an 80 percent internal rate of return when it sold United Malt Holdings, a maker of malt for beer and liquor, to GrainCorp. Ltd. And in August 2008 it generated 3x its invested capital and a 90 percent gross internal rate of return when it sold AmeriCast Technologies, an Atchison, Kansas-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 was acquired in July 2006 for $455 million.