First-time funds keep pushing in tough fundraising environment

A few first-time funds have hit the market this year, with one of them holding a final close after a relatively brisk fundraising.

First-time funds are hard to raise in today’s strong fundraising environment as limited partners are less inclined to take risks when their more established managers are coming back quicker than ever. Those established managers as well are creating new products, obviating the need for LPs to look at new firms for different strategies.

One of those new firms was formed by ex- Energy Capital Partners executive Rahul Advani, who formed SER Capital Partners to invest in sustainable, environmentally focused and renewable energy. SER is working on several pre-fund deals and is expected to launch its first fund.

SER hasn’t yet launched a fund, but is expected to target $750 million once it hits the market. The firm is working with Metric Point Capital.

Advani worked at Energy Capital from 2005 to 2018, prior to which he worked at Orion Power Holdings. Advani is joined by Kelly Sarber, who has worked in waste, water and other infrastructure; Christopher Smith, an executive with Sunnova, which provides battery storage, system protection services and residential solar; Rhem Wooten, formerly an executive with Hannon Armstrong Sustainable Infrastructure; and Puneet Verma, former principal of project finance at Bloom Energy.

Another new GP closed its first fund earlier this month. MiddleGround Capital, formed by ex-Monomoy executives John Stewart, Lauren Mulholland and Scot Duncan last year, closed its debut fund on $459.5 million. MiddleGround was targeting $425 million with a $450 million hard cap. The firm received a $75 million anchor commitment from Archean Capital Partners, a joint venture of Veritable and Moelis Asset Management. It worked with Credit Suisse as placement agent on the fundraising.

MiddleGround has deployed more than $150 million of equity capital across three platform investments within its first 12 months. It acquired Alco Manufacturing in July 2018, Peterson Spring in April 2019 and Steel Craft Corp in May, the firm said in a statement.

“We formed the fund in May, closed our first deal in July … investors could see how that deal was performing as we were going through the fundraising,” co-founder John Stewart said. “We did two more deals this year in April and June … they were able to see us execute on the transaction side.”

Investors also co-invested in the firm’s deals, “so they were able to work alongside us as we were underwriting the deals. That gave them comfort, they saw how the team was being built out and we told people this is the strategy and they could see it coming together exactly as we said it would, that really resonated with them,” Stewart said.

It’s ironic—as long as the strong fundraising environment keeps up, talented executives will leave their shops to start their own ventures. But established managers also will continue to exploit LPs’ desire to put money to work in private markets by coming back to market quicker and creating new products. So, despite the strength of fundraising, first-timers still have a long slog ahead of them. But as MiddleGround showed, there are ways to get that first fund raised.

—Chris Witkowsky