Kline Hill Partners, which focuses on the smaller end of the secondaries market, plans to target up to $250 million for its debut fund to invest in GP-led deals like restructurings, sources told Buyouts.
Kline Hill is joining other secondary firms like Strategic Partners and TPG in breaking out GP-led deals from the flagship fund to capture what has become the hottest opportunity in secondaries.
The firm, formed by ex-Willowridge Partners executive Mike Bego in 2015, is expected to launch its next round of fundraising around October, sources said. The firm will raise its next flagship fund alongside the debut GP-led pool, as well as its next overage fund, the sources said.
Kline Hill Fund IV will target up to $525 million and the Opportunity fund will seek $175 million, sources said. The goal for Fund IV represents a modest increase from Fund III, which closed on $450 million last year, along with a $150 million overage pool.
A spokesperson for Kline Hill declined to comment.
Kline Hill, as it grows, decided to formalize a GP-led strategy to capture such opportunities in the smaller part of the secondary market that is not well-mined by larger firms. The firm hired David Swanson from Unigestion to lead its GP-led efforts in North America, and Elena Laleh of Partners Group to focus on Europe.
GP-led deals like continuation funds and direct secondaries have become a much greater part of the broader private equity secondaries market. GP-led deals, for the first time, had the majority of the market share in 2020, a role traditionally taken by traditional LP portfolio sales.
The pandemic lockdown accelerated GPs’ desires to sort out certain assets from older pools, sources across the market have told Buyouts. GPs have been identifying their most treasured assets to move into continuation funds for more time and money to manage and grow those investments.
Specifically, Europe presents opportunities for small-secondaries, GP-led transactions, Bego told Buyouts in a prior interview. “In Europe, there’s more smaller managers, and the deal process is different in Europe,” he said. “We buy a lot of European assets and source a bunch there already, but we’ll be that much stronger with a local presence.”
While Kline Hill plans to stick to the deal size it’s excelled at since inception, it occasionally will stretch for larger transactions with the help of its overage funds. In the past, the firm closed larger deals with co-investment help from LPs, which required the creation of separate vehicles with their own fund contracts. The firm decided to raise the overage pool to smooth out the process, sources said.
The Opportunity funds don’t charge fees on committed capital, sources said, so if they are not used, LPs are not being charged.