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Excellere’s LPs vote to allow Fund III to continue investing after co-founder’s death

David Kessenich's death activated a key-person provision in the fund's terms, leading to a 120-day suspension period.

Excellere Partners‘ third fund was put on hold following the death of the firm’s co-founder earlier this year, and now limited partners are voting on whether to allow the fund to continue investing, according to documents from New Jersey Division of Investment.

Update: LPs voted to allow Fund III to continue investing, the firm said in a statement Monday.  The press release said the fund entered an “interim period” following Kessenich’s death, which would have lasted until May 21 absent an LP vote to suspend, but LPs voted to resume the commitment period on March 24. The fund currently has investments in AIS Healthcare, Biocare Medical, Concord Technologies, SePRO and ParcelShield.

David L. Kessenich died on January 22 at the age of 52, as Buyouts reported. At that time it was not clear whether his death would trigger a “key-person provision.” The key-person provision is a mechanism that bars the firm’s ability to make new investments after departure of key executives until its LPs authorize it.

According to the New Jersey documents prepared for its March 18 meeting, that is what happened.

“A 120-day interim suspension period began on January 23, 2020,” the document said. “The fund intends to resume full operations, pending approval of the continuation plan.”

Generally, firms in such situations will put forth a new slate of key executives that LPs must approve for the fund to continue investing.

The fund is Excellere Capital Fund III, LP. It has a 2017 vintage and raised $550 million. As of September 30, 2019, the net asset value of the fund was $399.58 million with a 1.31x total value multiple and a 17.8 percent net internal rate of return, according to the New Jersey document.

Kessenich’s participation in the firm had been limited in recent years due to his health problems, the documents said. He was supported by four other partners who are still with the firm as managing directors, according the the New Jersey document. Five people are listed as partners on the firm’s website: Brad Cornell, Mike Geldart, Ryan Glaws, Mike Hicks and Patrick O’Keefe.

Kessenich formed the firm in 2006 with Robert Martin, who died in 2017. Excellere Partners is based in Denver.

New Jersey staff said the fund’s continuation plan had been presented to its advisory committee and all of its investors. “The plan is currently under review by the Division,” staff said. New Jersey committed $50 million to the fund. Other pensions invested in the fund include Los Angeles County Employees Retirement Association and Texas County and District Retirement System.

New Jersey also raised its allowed private equity allocation from 12 to 15 percent at its meeting, as reported by sister title Private Equity International, due to the recent market volatility. It also approved a €100 million ($108 million) commitment to CVC Capital Partners’ next flagship fund, as Buyouts reported.

Action Item: read Excellere Partners’ form ADV here.