KPS Capital Partners closed its first-ever mid-cap fund on just over $1 billion alongside its fifth flagship pool, which hit its hard cap of $6.12 billion.
KPS Special Situations Fund V beat its original $5 billion target, while KPS Mid-Cap Fund beat its $750 million goal.
The fundraising proceeded quickly. PPMs were distributed on Sept. 4 and the deadline for LPs to submit commitment levels was set for Oct. 4. KPS received more than $15 billion aggregate investor demand.
KPS invests in complex corporate carve-outs, turnarounds, restructurings and bankruptcies.
The funds have a unique fee structure, with a 1.25 percent management fee and a 30 percent carry.
With the private equity industry standard usually being a 2 percent management fee and 20 percent carry, investors to the fund will pay less up front, but KPS will keep more of the investment returns than typical.
The source told Buyouts the lower management fee and higher carry are because KPS wants to “align its interests fully with its LPs and generate value by focusing on delivering strong investment returns.”
The funds have investors from more than 25 countries, the source said. KPS had about $11.5 billion in assets under management as of Oct. 15.
The $7 billion raised in total is more than twice as much as KPS’s previous fund, which closed at $3.5 billion.
According to meeting materials from New Jersey State Investment Council’s meeting last month, Fund V will target “control-oriented opportunities generally in manufacturing and industrial companies.”
The Mid-Cap fund will execute the same strategies as the flagship fund, but will target companies in the lower middle-market that are too small for the larger fund, meaning deals that require up to $100 million of initial equity capital.
A memo prepared by Hamilton Lane for Teachers’ Retirement System of Louisiana said the fund was targeting 12 to 15 investments with an estimated hold of three to five years per investment. The memo also showed that KPS’s previous fund, Special Situations Fund IV, had focused 88 percent on industrials as of Mar. 31, 2019, a considerable rise from the firm’s previous funds.
New Jersey’s report also included the returns on KPS’s previous funds as of June 30, 2019:
Fund I, which raised $210 million, had a 14.3 percent net investment rate of return (IRR), with a 1.64 net total value to paid-in multiple. Fund II, a 2003 vintage that raised $404 million, had a 56.1 percent net IRR and a 3.4 net multiple.
Fund III, a 2007 vintage that raised $1.2 billion in 2007, had a 23.5 percent net IRR and a 2.39 net multiple. Fund IIIS, vintage year 2009, had a 23.1 percent net IRR and a 2.27 net multiple. This fund consisted of an additional $800 million raised from investors in Fund III, according to sister publication Private Equity International.
Fund IV closed in 2013 at $3.5 billion, and had a 2014 vintage year. It had a 19.7 percent net IRR and a 1.28x net multiple.
KPS was founded by Michael Psaros and David Shapiro in 1997. They are both co-founders and managing partners. Raquel Palmer is an additional managing partner.
Other partners include Jay Bernstein, Kyle Mumford and Ryan Baker. They will all work on running Fund V. Partners Pierre de Villeméjane and Ryan Harrison will manage the Mid-Cap Fund investment team.
The firm has 21 investment professionals in total, according to the Louisiana Teachers memo.
Action Item: read KPS’s form ADV here.