Gores Breaks $1B Mark On Fund; San Diego On Board

The Gores Group recently got a $75 million pledge from the San Diego County Retirement Association for its third fund, even though the pension noted the “potential for headline risk” in a May board document. Launched in early 2009, Gores Capital Partners III has grown to more than $1 billion on a journey that has a target of $1.5 billion and a hard cap of $2 billion.

The Los Angeles buyout shop invests in technology, telecommunications, industrial and business services, as well as media, health care and security. The firm takes control stakes in mid-market business, and is expected to invest in 12 to 20 portfolio companies with the capital raised for Fund III by cutting checks of $50 million to $250 million.

The fund’s management fees during the investment period are 1.85 percent of commitments and after that are 1.5 percent of active investments, although they will be reduced by 100 percent of directors’ fees and 80 percent of transaction, break-up and other fees. The general partner will receive 20 percent of the carried interest.

According to a pension document, San Diego County made the pledge to Gores Capital Partners III due to attractive expected returns and a “favorable investment climate for distressed, turnaround, and carve-out situations in the U.S. and Europe.” Other limited partners in the fund include the Massachusetts Pension Reserves Investment Management and the Teacher Retirement System of Texas, as well as funds of funds and corporate pensions.

Interestingly, the pension document also indicates the board of the fund has some modest concern about the high profile maintained by founder Alec Gores. “Alec Gores and some relatives have attracted some media attention, possibly because of Mr. Gores’ being a successful businessman based in the Beverly Hills area,” the document said. “However, there is no evidence that any media publicity has affected the investment capabilities of The Gores Group or Mr. Gores himself.” It goes on to say that “there is no evidence that Mr. Gores himself has actively sought the limelight or uses his investments for objectives other than generating returns.”

That said, the limelight has found the Gores family, especially during a 2008 scandal involving an affair between Alec Gores’s then-wife, Lisa Gores, and his brother Tom Gores, the head of Platinum Equity LLC. The affair was revealed during the trial of former private detective Anthony Pellicano, who had illegally employed the use of a wire tap after he was hired by Alec Gores to investigate his wife. It appears, however, that the affair did not have a lasting effect on the brothers’ ability to work together. In April, they teamed up to make a bid for Miramax Films, which is being sold by Walt Disney Co.

Gores Capital Partners II LP closed with $1.3 billion in 2007, and as of March 2010, had been used to make seven investments totaling more than $687 million. “Preliminary valuations indicate an IRR in excess of 15 percent annually,” according to the pension fund document.

Alec Gores founded The Gores Group in 1987. Along with Los Angeles, the firm also has offices in Boulder, Colo., and London.