Fundamental Advisors raised almost 40 percent of the $1 billion target set for a fourth municipal distressed offering as covid-19 continues to punch holes in local government budgets.
The New York private equity firm in December filed Form D fundraising documents that said Fundamental Partners IV collected an initial $386 million-plus. Buyouts reported the target in mid-2020, noting it approximates the $993 million secured by Fund III in 2017.
Some 291 limited partners committed capital to Fund IV, the Form D documents said. Parties that received sales proceeds as part of the marketing effort (which often describes placement agencies) were: Stifel, Gallatin Capital, Neuberger Berman BD, FNEX Capital, Profor Securities and Morgan Stanley Smith Barney.
Fundamental is led by chairman and CEO Laurence Gottlieb, who helped launch the firm in 2007. A former co-head of Citigroup’s municipal distressed and special situations proprietary trading desk, Gottlieb and his colleagues set up Fundamental to invest in special situations in the municipal and public-purpose markets.
The strategy, unique in its focus, is designed to “exploit pockets of inefficiency, distress, illiquidity and structural complexity” in these markets, according to Fundamental’s website. This is done in large part by acquiring control interests in stressed and distressed municipal and public-purpose assets and securities, both debt and equity.
Fundamental taps the $4 trillion municipal bond market for many of its opportunities. It also backs the development and revitalization of public-purpose assets and buys undervalued securities in the secondaries market. Sectors of interest include healthcare and senior care, housing, hospitality and urban renewal, and infrastructure and renewable energy.
One of Fundamental’s best-known deals is its 2014 sale of the Memphis Redbirds’ minor league baseball team to the St. Louis Cardinals and return of the team’s stadium to the City of Memphis. Fundamental, for more than three years the sole municipal bondholder of the Memphis Redbirds Baseball Foundation, “stabilized that asset, which was in a tailspin,” Gottlieb told Buyouts.
Local governments are today facing a fiscal crunch due to the health crisis, which has eroded revenue and increased costs. Recent studies have projected major budget shortfalls in the years ahead. They include a December report by Brookings that estimated US state and local government revenue losses to be about $140 billion in 2020, $110 billion in 2021 and $100 billion in 2022.
Fundamental’s Fund IV will focus on dislocation opportunities spawned by strained municipal finances, a person with knowledge of matter told Buyouts last year. It will also target financially troubled public-purpose and community assets, the person said.
Gottlieb, who before Citigroup was a senior vice president with Prudential Securities’ CAK Universal Credit Corp, oversees Fundamental’s senior team of nine.
Senior investment team members are Robert Jacobsen, Jonathan Stern and Ryan Keene. Jacobsen formerly ran Goldman Sachs’ municipal structured lending business, while Stern has a background in distressed debt and other areas. Keane previously worked in Wells Fargo Securities’ municipal investment banking group.
Fundamental declined to provide a comment on this story.
Action Item: Check out Fundamental Advisor’s ADV filings here.