NY firm plans for fund close, following departure of co-founders

Executives at Enhanced Equity Fund expect to close their second fund at its hard-cap by the end of June, according to a source familiar with the situation.

The optimistic outlook comes despite the departure of one of firm’s two co-founders, which resulted in the narrowing of its investment strategy.

The New York-based firm will likely close its second fund with $375 million in commitments. However, the vehicle will focus solely on health care services, while the firm’s previous fund, a $225 million pool of capital raised in 2006, also had a mandate to invest in information and business services.

The switch in focus is a result of co-founder Dave Howe having left last summer, the source said. Howe is in the process of buying one of the firm’s portfolio companies, said the source, who added that the departure was amicable.

Howe, a former partner at Citicorp Venture Capital Ltd. and Lightyear Capital, launched Enhanced Equity in 2005 with Andy Paul, a former managing general partner at health care-focused Welsh Carson Anderson & Stowe, where he served from 1984 to 2000. Howe headed information and business services side of Enhanced Equity, while Paul oversaw, and will continue to lead, investments in health care services. The firm has nine remaining investment professionals.

Enhanced Equity started raising the second fund just after Labor Day last year, and has not employed a placement agent. More than 20 investors agreed to commit to the fund, the source said.

The firm typically invests $10 million to $40 million of equity in buyouts or growth equity investments with enterprise values of between $20 million and $100 million.

The firm’s portfolio includes Correctional Healthcare Management, an Englewood, Calif.-based provider of health care services to inmates in county jails in the Southwest; Fitness Together, a Highlands Ranch, Colo.-based home health nursing company; and PrePak Systems Inc., a Cookeville, Tenn.-based company that repackages bulk pharmaceuticals. —Bernard Vaughan