Kelso kicks in $625 mln cash GP commitment to $2.56 bln Fund IX

  • Kelso kicks in $625 mln in cash, marking unusually large GP commitment
  • Kelso Investment Associates IX LP now about 30 percent deployed
  • Firm has been active on the deal front

After a long effort, Kelso & Co closed its first flagship fund since the financial crisis, Kelso Investment Associates IX LP, with $2.56 billion in commitments, including a cash contribution of $625 million from the New York firm, according to a source.

While raising funds, Kelso also kept busy by closing a flurry of acquisitions since 2015 and selling LP interests in its eighth fund to secondary player Ardian.

Kelso could find itself back on the fundraising trail as early as next year, since deployment of its ninth fund is now well underway, a second source said.

Kelso remained active on the deal front by placing about 30 percent of the fund by the time its ninth fund closed, the first source said.

In June, Kelso-backed Risk Strategies Co, a Boston insurance broker, expanded into Texas by acquiring McLaughlin Brunson Insurance Agency of Dallas. Risk Strategies announced other add-on deals this year in California, Florida, New Jersey, New York and Tennessee.

After inking no deals in 2014, Kelso made six portfolio-company investments in 2015: Eagle Family Foods, Risk Strategies, Sirius Computer Solutions, Ajax Resources, US LBM and American Beacon, its website said.

On the fundraising trail, Kelso launched its efforts around Kelso Investment Associates IX in 2014, with plans to wrap up the fund this past March, Buyouts has reported.

In the end, Kelso exceeded its target of $2.5 billion but fell short of the $5.13 billion it raised for Kelso Investment Associates VIII, which launched in 2007 and closed in 2008.

That pool had a 10.5 percent IRR and a 1.4x investment multiple as of Sept. 30, according to a report. Fund VIII’s performance has been improving after absorbing the impact of the global financial crisis.

Typically, GPs commit about 2 percent to a buyout fund, according to Buyouts data. Kelso’s $625 million stake in Fund IX stands out, according to industry participants. Kelso also offered to put cash into the kitty, rather than a management-fee waiver that doesn’t require any GP payments up front.

“This level of commitment exceeds the typical amount managers commit in percentage terms and provides a strong alignment of interest,” an investment memo from Maine Public Employees Retirement System said.

Maine PERS approved a $60 million commitment to Kelso IX LP in 2014, and other LPs eventually followed.

Alaska Permanent Fund Corp became an investor for the first time with Kelso earlier this year. Santa Barbara County Employees’ Retirement System also committed to Kelso in the past year.

Teachers’ Retirement System of Louisiana committed as much as $100 million to Kelso’s ninth fund in January. And secondary buyer Ardian committed to the fund as well, Buyouts has reported.

Ardian also purchased LP interests in Kelso’s eighth fund in a tender offer estimated at $150 million to $500 million, Buyouts reported in January. Kelso tapped Park Hill to run the tender offer after it heard from LPs interested in selling their interests in the fund, sources said.

Action Item: Contact John Kim, head of IR at Kelso:

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