Firm: Kelso & Co
Fund: Kelso Investment Associates IX LP
Target: $2.5 billion
Kelso began marketing Kelso Investment Associates IX LP in May, one source said. The investment strategy promises to be similar to previous Kelso funds, which have focused on buyouts in the energy, transportation, logistics, financial services and healthcare sectors.
The Public Employees Retirement Association of New Mexico’s investment committee approved a $60 million commitment to the fund the week of July 7. The commitment remains subject to the final approval of its board, which plans to consider the fund at its July 18 meeting, Portfolio Manager Joaquin Lujan said. The general partner of the fund is expected to commit $500 million, sources told Buyouts.
New Mexico is a limited partner in Kelso’s previous buyout fund, a $5.1 billion 2007 vintage that had generated an 8 percent internal rate of return through March 31, one market source said. The current performance represents a remarkable recovery from where it was in late 2011, when the Florida State Board of Administration reported that Fund VIII was generating a negative 5.76 percent IRR; as of year-end it reported a 3.9 percent IRR. Florida as of year-end put the performance of Fund VII at 12.3 percent.
A different LP attributed Fund VIII’s performance in part to the timing of its investments. Kelso waited out the financial crisis before investing Fund VIII, they said, prolonging the fund’s J-curve.
Fund VIII’s performance has likely benefited from a pair of recent exits. Kelso sold events services company PSAV Presentation Services to Goldman Sachs and Olympus Partners earlier this year. Last year, the firm sold Custom Building Products Inc to Quiktree Companies Inc in a deal that was said to be valued in the $700 million to $800 million range, Reuters reported.
“We expect (Fund VIII) to actually do pretty well,” Lujan said. “The projections for the existing portfolio are pretty good.”
New Mexico has enjoyed its relationship with Kelso, Lujan said, adding that the $60 million commitment is consistent with the retirement association’s plans to make larger commitments to its core general partners.
Kelso was founded in 1971 by Louis Kelso. The firm operated as an advisory firm until 1980, when it began investing in private equity.
(Update: This story has been updated to reflect that Kelso invested in PSAV Presentation Services and Custum Building Products through Fund VIII.)