Hamilton Lane sets $100 mln mezz fund for Florida deals

  • New strategy for Florida Growth Fund
  • New pool for non-control, smaller deals
  • Fund already ‘proactive co-investor’

“We’re going to help the statewide economy by providing capital where there wasn’t a great deal of capital before,” Greg Baty, a principal at Bala Cynwyd, Pennsylvania-based Hamilton Lane, told Buyouts.

The $100 million in capital for the new strategy comes from an existing Florida SBA program, the $500 million Florida Growth Fund that was established in 2009 to invest in growing companies in the state. Over the past four years, the fund has invested in 15 or 16 funds, including buyouts, growth capital, venture and mezzanine strategies, and has made 22 direct investments, Baty said.

“Think of us as a very proactive co-investor,” said Baty, who manages the Florida Growth Fund. “Along the way, we’ve seen a lot of deals that were not right for a private equity fund but would be perfect for a mezzanine fund.”

Among those are transactions that are simply too small for conventional private equity investments, as well as companies whose owners needed capital for expansion but who did not want to cede control in a deal, Baty said.

“There are certain deals that are mezzanine deals, and there are certain deals that are equity deals,” he said. “This puts another arrow in our quiver. It’s another form of capital that is missing, or largely missing, in the state of Florida.”

The establishment of the mezzanine fund was previously reported by the Tampa Bay Business Journal.

Florida was hit hard during the financial crisis, with a number of local banks closed by regulators. Because of that, and because of tighter restrictions on conventional lenders in the aftermath of the crisis, the state faces a void in the area of small company growth capital, Baty said. “There is not a lot of resident private equity capital in the state of Florida.”

The Florida Growth Fund typically cuts checks in the size of $3 million to $15 million for direct investments, and that probably will remain consistent for the mezzanine strategy as well, he said. Although the new fund is not yet officially in operation — executives are still working out details of a separate accounting structure for the new entity — it is already looking at deals.

“We probably have 10 deals that we are analyzing and diligencing in the credit space right now,” Baty said. The mission of the Florida Growth Fund is to provide “directed capital” for Florida-based companies or those based elsewhere that have significant operations in the state, but Baty emphasized that the strategy of the Florida SBA, which manages $167.5 billion in pension and emergency funds, is not to subsidize questionable investments but to provide capital for companies that do business there.

“If we have 10 goals with the Florida Growth Fund, the top nine are to provide a great return, all while doing it in a Florida context.”