Fund II: Greenhill’s Steep Incline –

Greenhill Capital Partners, the private equity arm of New York investment bank Greenhill & Co. Inc., recently wrapped up fundraising on its second investment vehicle. After about seven months on the market, Greenhill Capital Partners II LP hit its $875 million hard cap. The fund’s original target was $700 million.

Compared to its last fund, the new vehicle represents a substantial hike in capital. Greenhill Capital Partners I LP was raised in 2000 and took in a total of $423 million from limited partners, which included Greenhill & Co. and management at the firm. That fund made investments in 19 separate portfolio companies and, as of June 8, 2005, had $56 million of undrawn capital earmarked for follow-on investments.

“When we raised Fund I, the fundraising environment was frothier and more conducive to raising a first-time fund than it is today-the barriers for entry were lower,” said Robert Niehaus, chairman of Greenhill Capital Partners. “Today is a more discerning [fundraising] environment, but we had a more convincing story to tell, being that this was our second fund… As far as timing is concerned, I think we got lucky in both cases.”

Ten percent, or $88 million, of Fund II’s commitments came from Greenhill & Co. In addition, Greenhill’s managing directors and other professionals committed a further $136 million of their own capital to the fund. The remaining 74% of committed capital hails from institutional investors, wealthy families and high-net-worth individuals. About 70% of Fund I’s investors made commitments to the predecessor, Niehaus said. He declined to name any of the firm’s LPs specifically.

Seeking to broaden its institutional investor base, Greenhill tapped Merrill Lynch to serve as placement agent for the fund. As such, approximately two-thirds of Fund II’s outside capital came from institutional investors. In contrast, the outside capital commitments to Fund I, which was raised absent of a placement agent, came mostly from individuals and families, Niehaus said.

But Greenhill doesn’t credit all its new institutional attention to the use of a placement agent alone. For one thing, the firm is exceeding its targeted 25% to 30% net returns for Fund I’s investments, Niehaus said. In addition, limited partners have an “increasing desire for sector-focused funds,” which bodes well for Greenhill since it only targets the energy, financial services and telecom industries, he noted.

Greenhill will still target the same sized companies with its deeper pool of capital, but where previously the firm injected an average of $20 million of equity per Fund I investment, Fund II will deploy between $30 million and $35 million of equity per investment. This will allow Greenhill, which often invests with partners, to take the lead position more often, Niehaus said.

Greenhill has already put approximately $100 million of Fund II’s capital to work in four deals. About $80 million was invested to acquire CLK Energy Partners LLC, Energy 51 Inc. and Genesis Gas & Oil LLC in three separate control-stake transactions that were all announced last month. The remaining $20 million was used for a follow-on investment for Global Signal Inc., a telecom infrastructure company Greenhill acquired in 2002.

And for Greenhill, getting back to deal sourcing is a welcomed change of pace. “It’s like finishing your exams,” Niehaus said. “It’s just a relief when fundraising is over.”


Firm: Greenhill Capital Partners

Fund: Greenhill Capital Partners II LP

Target $700M

Amount Raised: $875M

Placement agent: Merrill Lynch

Legal Counsel: Davis Polk & Wardwell