In tough market, LightBay, led by former Ares execs, amasses $1bn for second pool

As private equity firms, and especially new ones, struggle to attract capital in the challenging markets, some firms have been quietly carving their niches and reaching their goals.

LightBay Capital, led by former Ares Management executives Nav Rahemtulla and Adam Stein, is expected to announce later today the closing of its second fund on more than $1 billion, reaching its hard cap. Fund II had been targeting $800 million since hitting the market toward the end of 2021. UBS worked as placement agent on the fundraising.

Fund II was essentially wrapped up last year but LightBay kept it open for several existing LPs, sources said. Capital came from existing LPs, around 98 percent of them who re-upped, and new investors, sources said. LPs included state and local pension funds, family offices, foundations, funds-of-funds, insurers and the firm’s network of industry executives.

Fund II has made investments so far in Infinity Home Services and HVAC provider Clarion Home Services Group. The firm last year also sold a majority stake in Alliance Animal Health, retaining a small piece, for more than 4x return, sources said.

The pool has standard market terms. An unusual aspect of LightBay’s funds is that the firm offers a fixed amount of its management fees and carried interest to its LightBay Foundation. The Foundation’s goals are improving access to high-quality education, advancing and expanding access to healthcare and addressing basic needs and skill training to underserved families.

Rahemtulla and Stein formed LightBay in 2016 to invest in consumer, healthcare and business services. It closed its debut fund on $615 million, beating its $450 million target, the firm announced in January 2018. At Ares, Rahemtulla led healthcare investing and Stein led consumer and retail investing – both on the private equity side of the business.

LightBay employs a “flexible capital” approach in which it can invest via LBOs, growth and structured minority deals. The firm also deploys a team of operators to work with portfolio companies to help drive growth.

“LightBay believes its flexible ‘all weather’ strategy is currently underserved in the mid- and lower-mid-markets by sophisticated, sponsor-oriented firms,” LightBay said in its Form ADV.

While LightBay beat its fundraising target, the story is tougher for newer managers today. Capital raised by emerging global private equity GPs that closed up to three funds within 2020, 2021 and the first quarter of 2022 totaled about $115 billion, compared to about $72 billion for the same cohort in the years 2021, 2022 and the first quarter of this year, according to PEI data.

Check out Buyouts’ full coverage of emerging managers (including first-time funds) on our dedicated page to new firm formation here.