New Mountain peaks with $3B fund

If a troubled credit market has made fund-raising more troublesome, someone forgot to tell New Mountain Capital. Five weeks after dropping off its PPM with investors, the New York-based buyout firm raised the $3 billion target for its third fund.

The LBO shop hasn’t yet closed New Mountain Partners III, preferring to leave it open for an unspecified period of time, according to a source familiar with the fund-raising. Prior investors the California Public Employees’ Retirement System, the Florida State Board of Administration and Oregon State Treasury all returned to make bigger commitments in fund III.

Other previous New Mountain investors include Los Angeles Fire & Police Pension System, Ohio Public Employees’ Retirement System and Pennsylvania State Employees’ Retirement System.

Founded in 2000 by Steve Klinsky, a former lieutenant for buyout legend Ted Forstmann, New Mountain is poised to double the size of its 2005-vintage, $1.55 billion second fund. The firm’s first fund raised $770 million in 2000.

“Steve is no stranger to doing bigger deals,” says a second source familiar with New Mountain’s fund-raising. “If people look at what he’s doing, they won’t feel uncomfortable. Steve is somebody who generates a huge amount of trust.”

New Mountain also boasts an enviable track record. Its five-year, $110 million backing of the for-profit education company Strayer Education returned nearly 5x the investment to New Mountain’s LPs. The second fund has generated an IRR of 30.1% through 2006, according to return data from CalPERS. “It doesn’t look like Steve is going to have a bad deal in his first fund or second fund,” the second source says. —Jeremy Harrell