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Fundamental targets $1bn for fourth municipal distressed fund

Fundamental Partners IV is eyeing dislocation opportunities created as a result of severely strained municipal budgets, a source told Buyouts.

Municipality-focused distressed investor Fundamental returned to the market with a fourth flagship offering as local governments face a worsening fiscal crunch due to the covid-19 pandemic.

Fundamental Partners IV is seeking $1 billion, according to a Form D fundraising document published this week. The target set by the New York private equity firm approximates the $993 million collected by the vehicle’s predecessor in 2017.

Stifel’s Eaton Partners is Fund IV’s placement agent, the Form D showed.

Fund III secured commitments from Arizona Public Safety Personnel Retirement System, Kentucky Retirement Systems and Utah School and Institutional Trust Fund Office, among other limited partners.

Founded in 2007, Fundamental is led by chairman and CEO Laurence Gottlieb, formerly co-head of Citigroup’s municipal distressed and special situations proprietary trading desk. The firm specializes in making control investments in stressed and distressed assets and securities, both debt and equity, in municipal markets.

Fund IV will maintain this strategy, with an eye on dislocation opportunities created as a result of severely strained municipal budgets, a person familiar with the matter told Buyouts. It will also target financially troubled public-purpose and community assets, the source said.

Covid-19 is eroding the revenue base of local governments across the US. As early as April, a survey by the United States Conference of Mayors and the National League of Cities found nearly nine in 10 cities expected a budget shortfall. This threatens the ability of about 90,000 non-federal authorities to deliver essential services, such as fire departments and schools.

Fundamental taps the roughly $4 trillion municipal bond market for many of its opportunities. It also backs the development and revitalization of public-purpose assets and acquires undervalued securities in the secondaries market. Sectors of interest include healthcare and senior care, housing, hospitality and urban renewal, and infrastructure and renewable energy.

Fundamental’s investments include The Clare at Rush and Pearson, a Chicago senior housing facility acquired in 2012 in a bankruptcy court auction. The firm helped restore The Clare to profitability, it said in a January statement, raising occupancy to 98 percent from 34 percent, before selling this year to LCS.

Fundamental also this year formed a partnership with Scribner Capital to invest in the senior housing and healthcare sectors. The initiative will tackle pandemic-related challenges in these sectors, such as liquidity issues and anticipated occupancy difficulties.

Along with its control strategy, Fundamental has an opportunistic credit strategy that is also geared to municipal markets. The group overseeing this activity, FCO Advisors, was launched in 2013 by CEO and CIO Hector Negroni, formerly the head of municipal trading at Goldman Sachs.

FCO Select Credit II is presently in the market, according to a Form D document. The offering is targeted to bring in $150 million.

Fundamental declined to provide a comment on this story.

Action Item: Check out Fundamental’s ADV filings here.