KPS raises $1.2B in oversubscribed fund

When KPS Capital Partners told investors in January that it was planning to raise a third fund with a $1 billion target, limited partners responded that they were ready to commit as much as $4.5 billion. Why were LPs willing to go over the target? “Because fund II has been like an ATM machine to our limited partners,” says Michael Psaros, co-founder of the New York-based firm.

The firm’s $404 million second fund, which closed in 2004, has posted a net IRR of 61% and an investment multiple of 2.3x, as of the December 2006, according to backer California Public Employees’ Retirement System. Over the past year, KPS Capital has exited a string of companies, including a seven-day span in November when the firm announced four sales. It has capital enough for about one more deal before the second fund is drained.

KPS Special Situations Fund III didn’t top out at $4.5 billion, but it raised $1.2 billion in less than four months from LPs, many of which agreed to co-invest with KPS Capital.

Psaros declined to name LPs, but he said that about 20% of the investors came from Europe and Asia (See 5 questions with Mike Psaros, page 3). In adddition to CalPERS, LPs from previous KPS funds include the State of Connecticut Retirement & Trust, GE Asset Management, Hamilton Lane and the New Mexico State Investment Council.

KPS Capital specializes in buying manufacturing and industrial companies, often those plagued by labor disputes or bankruptcy proceedings. Typically, KPS invests in the United States, though the firm has turned around companies in Germany and Brazil. —Mark Cecil