Clearlake Capital hits fundraising trail minus a founder

Chang co-founded special situations-focused Clearlake in 2006 along with Behdad Eghbali and José Feliciano. Both Eghbali and Feliciano will continue leading the firm as managing partners, one source said.

It’s not clear why Chang left, but one source described the departure as amicable.

Clearlake has been open with limited partners about Chang’s departure as it pre-markets its fourth flagship fund, which has a $1 billion target and $1.25 billion hard cap, the sources said.

“They’re telling people now so it won’t be a surprise to LPs,” one of the sources, an LP who has heard the fund pitch, said about Chang’s departure. Fund IV is “a pretty hot name in the market,” the LP said.

The firm is not officially in fundraising mode as private placement memorandums have not yet gone out, the sources said.

Sidecar also planned

Along with the flagship vehicle, Clearlake for the first time is bringing a smaller sidecar vehicle to market, Clearlake Opportunities Partners, targeting $500 million. The smaller fund will pursue non-control investments, the LP said. The non-control strategy will be managed by Clearlake’s main deal team, rather than a separate team, one of the sources said.

It’s “very common for special situation investors to try and capture the synergies between their control investments by raising non-control funds,” one of the sources said.

The total potential fundraising – almost $1.8 billion between the flagship’s capped amount and the sidecar – would represent a fairly large jump in fund size, the LP said. Clearlake’s prior fund raised more than $785 million, beating its $600 million target.

“It’s a capital raise proposal that can be tough to swallow because of the jump in size,” the LP said.

Going big

Clearlake would not be alone is boosting its capital pool in a big way. Turnaround firm Marlin Equity Partners had one of the quicker fundraisings in 2013, hauling in $1.6 billion for its fourth fund. Fund IV eclipsed the prior fund, which closed on $650 million in 2009. Marlin last year went on to raise a $400 million fund marketed only to LPs in Fund IV to focus investments on the lower middle-market.

Another firm that is said to be eyeing a big jump in fund size is American Industrial Partners, which has been talking to LPs about targeting $1.5 billion to $2 billion for its sixth fund. Fundraising is expected to launch this year. AIP’s prior fund closed on $700 million in 2011. 

Big fund size increases usually concern LPs, though many appear to be getting comfortable as long as past performance is strong.

“I’ve seen too many managers take a great opportunity and ruin it by the amount of capital that’s been raised,” one LP said during a recent interview. “It’s one of the least flattering dynamics of the asset class in general. As soon as there’s an opportunity that is really strong, generally the GP does something to make it far less attractive, like raise more money or lose people or raise another product that will distract them, or spend the money too fast.”

Clearlake has had strong past performance. Fund III was generating a 34.6 percent net internal rate of return and a 1.3x multiple as of Sept. 30, 2014, according to the California Public Employees’ Retirement System.

Clearlake’s second fund, which closed on more than $410 million in 2010, was producing a 22.8 percent net IRR and a 1.6x multiple as of Sept. 30, 2014, CalPERS reported. That is down from the lofty 48.4 percent net IRR that CalPERS reported for Fund II in 2012.

In personnel news, Clearlake has promoted Prashant Mehrotra to partner and has hired Fred Ebrahemi as general counsel and chief compliance officer.