Emerging manager Gainline navigates to cap for second fund

After a fairly lengthy fundraising process, Gainline Capital reached, and slightly surpassed, the cap on its second fund for investments in the lower-mid-market.

Gainline has been in the market, and had reached the target on Fund II as of last fall, but continued to raise through the market downturn toward the cap. The firm is among a handful of emerging managers facing challenges in attracting capital from limited partners who are mostly content sticking with their deepest relationships, especially eschewing new firms.

Emerging manager fundraising has slipped, especially for first-timers. Globally, first-time funds collected about $67 billion, which dropped to around $8 billion as of the first quarter this year, according to PEI data. Preqin found that first-time funds globally collected $26.2 billion last year, down from $64.4 billion in 2021. Check out Buyouts‘ extensive database of emerging managers to learn more about activity in the space.

Gainline has raised about $400.3 million from 90 investors, according to a Form D fundraising document filed this week. The firm worked with Credit Suisse as placement agent on the process.

Gainline Fund II initially targeted $300 million. Gainline launched Fund II in 2021, according to sources and securities filings. All limited partners in Fund I re-upped into Fund II, the firm said in an official statement.

Fund II held an early close in fall 2021 to take advantage of a transaction to expand its brand management platform Galaxy Universal, the firm said. Fund II has already deployed $106 million in two investments, the statement said.

Allan Weinstein, managing partner, and Rick Sullivan, partner, co-founded Gainline in 2015. Both spent time working at Lincolnshire. Weinstein worked at Lincolnshire for nearly 18 years, before leaving in 2012 and joining CAI Private Equity as managing partner. Sullivan worked at Lincolnshire from 2004 to 2015.

The firm invests in lower-mid-market businesses in business services, niche manufacturing, consumer and logistics and transportation services. It looks for companies “with characteristics that may deter other investors and create pricing inefficiencies that can lead to higher returns,” according to Gainline’s Form ADV.

Those characteristics could include “a storied history, unidentified or undervalued assets, complicated ownership issues, litigation or regulatory matters, identifiable cost savings, opportunities for professionalization,” the ADV said.

The firm closed the first fund on $155 million, according to a statement at the time.

In April, the firm announced a majority investment in Texas-based electricity company Flagship Power.

Update: This story was updated to include additional information about the fundraising and the initial target on the fund.