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HSBC Spin-Out Eyes Fund Launches In 2012

Graycliff Partners LP, the latest private equity group to spin out of HSBC, expects to start raising its first independent funds focused on the United States and Latin America within the next year, Managing Director James Marley told Buyouts.

“It might be fairly soon, but that depends on the investment pace and the state of the market,” Marley said.

Graycliff Partners on Dec. 5 announced the completion of its spin-out from HSBC, which has also been the launching pad for private equity groups focused on Asia, Canada and the infrastructure sector over the last year.

Based in New York, Graycliff Partners has 16 investment professionals, including three based in an office in Sao Paulo, Brazil. The firm makes equity, mezzanine and real estate investments in lower-mid-market companies, typically deploying $5 million to $20 million in deals.

Marley and his colleagues haven’t finalized a target for the next funds, but he said they would likely seek to raise funds of a size consistent with their predecessor funds. The firm’s U.S.-focused fund, HSBC Private Equity II, closed in 2007 with a bit more than $300 million in commitments, while its fund focused on Latin America, HSBC Latin America Partners, closed in early 2009 with $200 million in commitments.

Both funds are about 60 percent invested, Marley said, and could be used to back three to four more portfolio companies each. The Latin American team—which often overlaps with professionals from the New York office—is in the process of closing its ninth deal, Marley said. The U.S. group, which holds 13 companies in its portfolio, last closed a deal in late 2010 but is working on two possible deals right now, Marley said.

Graycliff Partners is the fourth private equity group to spin out of HSBC. Late last year, the bank’s Asia-focused private equity team, HSBC Private Equity Asia Ltd., spun out to form Headland Capital Partners Ltd., with committed capital of approximately $2.4 billion. In April, its infrastructure-focused team spun out to form InfraRed Capital Partners. Last month, the bank’s private equity group based in Canada spun out to form Fulcrum Capital Partners.

HSBC and other non-U.S. banks have been re-evaluating their private equity strategies in light of new regulations in Europe and the United States, where the Volcker Rule provision of the sweeping Dodd-Frank law limits the ability of banks to sponsor private equity funds. In November, Barclays Bank PLC completed the spin-out of its private equity arm, now known as Equistone Partners Europe.