FdG Associates is expected to announce the close of its second institutional fund later today. FdG Capital Partners II closed in early May with $310 million, a little above its $300 million target. Other than being larger than its last fund, the biggest change with Fund II is the number of LPs that came aboard.
The New York-based firm’s last fund had seven LPs while Fund II boasts 23 LPs. The LPs are made up of public and private pension funds, fund of funds, an insurance company, a leveraged lender, European investors, a number of family offices and high net worth individuals.
“We had to turn down capital so we didn’t outgrow our space, but at the same time we wanted to broaden our investment base. It’s really interesting how we check every box and got every group to invest with us,” said David Gellman, a managing director with FdG.
Some of the LPs in this fund include, JP Morgan Asset Management, Employees Retirement System of Ohio and Mass Mutual Life Insurance. “Our previous LPs were very supportive and then we hired Credit Suisse First Boston to introduce us to institutions in the U.S. and outside the U.S. They did a great job,” said Mark Hauser, a managing director with FdG.
While adding institutions to the firm’s investor base was certainly the goal, Hauser, is quick to point out that FdG is very thankful it has individual investors as well. “Twenty percent of our money comes from high net worth families. That is important to us because that’s how FdG started, with two families,” he said.
Although this is FdG’s second institutional fund, it is its third pool of capital. The firm’s first fund, raised in 1995, was made up exclusively of Fisher and de Gunzburg capital. Then, in 1998, FdG raised its first institutional fund, which had seven investors and closed with $205 million. The firm made 11 investments out of that fund. FdG’s most recent fund, Fund II, was launched in May 2004 and is already about 30% invested.
To date, the firm has made three investments out of this fund. It invested in River Ranch Food and Sunrise Windows earlier this year and most recently FdG invested in to Hercules Tires, one of the largest tire distributors in North America and Canada. The company does about $350 million in revenue and was owned by 32 dealers through a co-op. FdG was brought in to help management get rid of the co-op structure, which was stunting Hercules’ growth.
While the value of this deal wasn’t disclosed, this deal was at the larger end of FdG’s target size range, said a source, adding that of the firm’s newest deals, one fits into the smaller end of FdG’s target, while one deal was medium size and the Hercules deal was large.
The firm usually commits between $15 million and $50 million in equity to sponsor management buyouts, recapitalizations and growth-oriented capital investments in private and public companies. FdG generally invests in business and consumer services, distribution, light manufacturing, retail and consumer products sectors. FdG’s usual investment life is five years, although they reserve the right to hold a company as long as 13 years.
“None of this is changing. Deal flow is strong where we operate and there are opportunities. We have a reputation for family recaps in the lower end of the middle market and we want to stick to what we are good at,” said Gellman.
“In practice, we work on a five-year strategic plan with each portfolio company. Five years is one lengthy business cycle.”
Although nothing stipulates FdG must exit its ownership of Hercules at the end of that period, that could happen, he said. “Thirteen years is the real deadline, but we tend to work toward an average of five.”