Golden Gate Closes $614M Annex Fund

Golden Gate Capital has quietly closed on a $614 million annex fund, earmarked to supplement a $1.8 billion Fund II raised in 2004 for buyouts and growth-equity investments in media, technology, consumer products and other fields.

The San Francisco-based LBO shop informed its limited partners of the final close during its annual meeting earlier this month, multiple sources in attendance told Buyouts. What Golden Gate didn’t tell limited partners, however, were details about how the firm plans to structure its next non-annex fund.

According to sources close to the firm, Golden Gate will almost certainly employ an evergreen structure for Fund III, with pre-marketing expected to begin late this year. Evergreen structures are highly unusual in the private equity market. They allow LPs to choose when they commit to general partnerships, and GPs can return to investors to ask for more money after running through initial commitments. Typically, LPs can try to negotiate their own terms as they commit to funds.

For its third fund, Golden Gate also will accept select fund of funds as limited partners—contrary to pervasive rumors that it was going to exclude them, as has venture capital firm Sequoia Capital. To accommodate funds of funds, Golden Gate would schedule rolling closes that would be compatible with the vintage-year strategies of many funds of funds.

It’s unclear how much Golden Gate plans to raise for its third fund, but the firm has told LPs that it plans to put to work around $600 million per year. That would suggest a likely target of approximately $2.4 billion. And Fund III will almost certainly be oversubscribed, since its first fund “has returned 5x with a 67 percent IRR and still has legs,” according to one LP source.

Golden Gate has around $900 million in dry powder, which includes $300 million remaining from Fund II and the new annex capital.—D.P.