Diamond Castle Holdings looks to be in a hurry.
The New York-based buyout shop had committed $670 million, or 40%, of its Diamond Castle Partners IV LP inaugural fund well before it closed the $1.825 billion fund in mid-December.
“The [fund-raising] market is strong, very crowded, and we were very happy to end up with more than we set out to raise,” says Lawrence Schloss, who co-founded the firm in 2004 with a quartet of former DLJ Merchant Banking deal pros. Schloss was formerly global head of Credit Suisse First Boston Private Equity, successor to the DLJ Merchant Banking Group.
Diamond Castle plans to invest the balance of the fund over the next 12 to 18 months, which is about how long it took to raise the money. The mid-market shop invests solely in U.S. companies, taking controlling equity stakes in businesses worth between $200 million and $1.5 billion. The firm favors energy, power, financial services, media, telecom and health care. It “tries to avoid big broad auctions” to get better valuations, Schloss says. A source familiar with the fund says the firm expects to generate returns in the mid-20% range.
Managing Directors Michael Ranger and Ari Benacerraf tend to specialize in energy and power, while Benacerraf also works on health care deals. Managing Directors Gene Lockhart and Andy Rush tackle financial services, including insurance companies, lenders and asset managers. Managing directors Scott Schneider, Rush and David Wittels work on media and communications deals.
So far, fund IV has made six acquisitions. Among the more recent is the 90% stake it took in NES Rentals Holdings, the fifth largest equipment rental company in the United State, according to Schloss. The investment cost the fund $850 million, including the repayment and assumption of debt. Its newest portfolio company, added in November, was PRC LLC, a customer relationship management services company, acquired for an undisclosed sum. In late December, Schloss says, the fund plans to close on its next acquisition, an outsourced customer care company, for $300 million.
The name of the debut Diamond Castle fund—Fund IV—may confuse some. But it gives a clue to why the firm was able to raise so much capital. The Diamond Castle team had worked together on three earlier funds: DLJ Merchant Banking Partners LP, a $1 billion 1992 fund; DLJ Merchant Banking Partners Fund II LP, a $3 billion 1996 fund; and DLJ Merchant Banking Partners Fund III LP, a $5.4 billion 2000 fund. The Ontario Teachers’ Pension Plan, the Canada Pension Plan, Chubb Corp., the State of Minnesota, the State of Oregon, the World Bank, and Cigna Corp. each committed to the new fund. Of the 40 or so investors, 35% are public pension funds; 10% corporate pension funds; 15% insurance companies; 10% endowments and other investors; 20% high net worth individuals; and 10% funds-of-funds. The bulk of the money came from the United States and Canada, and about 25% wasfrom Europe, the Middle East and Japan, according to the firm. Expect many of the limited partners to co-invest in deals alongside Diamond Castle. —Erick Bergquist