Falcon Feathers Nest With More Than $700M

Firm: Falcon Investment Advisors LLC

Fund: Falcon Strategic Partners III LP

Target: $800 million

Amount Raised: $729 million

Falcon Investment Advisors LLC has closed its third mezzanine fund, Falcon Strategic Partners III LP, with $729 million of capital, short of the vehicle’s $800 million target.

Look for the firm to invest $10 million to $75 million of subordinated debt and equity in mid-sized companies to support their acquisitions, recapitalizations, buyouts and organic growth initiatives. Falcon Investment’s strategy centers on preserving capital, taking a board seat and forming a strong bond with the management team. The firm invests in companies with enterprise values of $30 million to $300 million that generate revenues of $50 million to $300 million and EBITDA of $5 million to $40 million.

As of early June, the firm had raised more than $660 million, according to a regulatory filing. Among Fund III’s backers, the Los Angeles City Employees’ Retirement System pledged $10 million; the Maryland State Retirement and Pension System committed $35 million; and the New Mexico State Investment Council pledged $25 million. New York State Common Retirement Fund re-upped via a $50 million pledge; and Teachers’ Retirement System of Louisiana pledged $75 million. Other limited partners in the fund include Alpinvest and the Florida State Board of Administration. Falcon Investment is contributing 2 percent of aggregate fund commitments.

The firm, which was founded in 2000, has offices in Boston, Dallas and New York. Falcon Investment’s managing partners, Sandeep Alva and William Kennedy, previously worked at the mezzanine group at John Hancock Life Insurance.

According to September 2008 board documents from the New Mexico State Investment Council, the firm’s first fund is a $223 million 2002 vintage fund that, as of June 30, 2008, had generated a 41.6 percent gross IRR and a 2.5x investment multiple; Fund II, a $440 million 2005 vintage fund, had generated a 13.9 percent gross IRR and a 1.2x investment multiple.