At a time when nearly every general partner is struggling to raise funds,
The newly collected pool of capital, known as
The money was raised to take advantage of the “unprecedented level of distressed opportunities in the current environment with limited competition from other financial firms,” according to a board document from the
Though the effort was ultimately capped at $800 million, KPS Capital received subscription requests of more than $1.3 billion for the “upsizing,” as the firm described the fundraise in a press release on Sept. 8.
Success on the fundraising circuit is nothing new for KPS Capital. KPS Special Situations Fund III secured pledges totaling $1.2 billion in less than four months in early 2007, even though the firm charged a premium carried interest rate of 25 percent on the vehicle. The supplemental capital raised this year has the same 25 percent carried interest structure.
Supplemental funds—also known as add-ons, top-ups, top-offs or re-opens—allow firms to increase their capitalization in order to make more investments though an existing fund. Related vehicles include annex funds, which are used to support existing portfolio companies, and side-car funds, which are often used to allow an LP to take larger capital positions in deals it finds appealing via co-investments alongside general partners. The management fee and carried interest are often much less for side-car funds.
So why would a firm bother with a supplement to a closed fund rather than simply raising a new vehicle? As shown in the table, firms offer a variety of reasons for creating supplemental funds.
But there are legal advantages, too. Fund agreements usually restrict the raising of a new or successor fund with a similar focus during the investment period unless consent is obtained, usually via an LP vote and sometimes by a vote of the advisory committee as well, said David T. Jones, a partner with law firm Proskauer Rose LLP. By re-opening a fund, the general partner avoids potential investment opportunity conflicts.