Pennsylvania Public School Employees’ Retirement System has upped its commitment in New Mountain Capital‘s latest flagship fund as the firm works towards its $8 billion target and $9 billion hard-cap.
In March, the pension committed $175 million to the technology buyouts manager’s sixth fund, as Buyouts reported. Staff came back to the investment committee August 6 to request $75 million more, bringing the total commitment up to $250 million and providing fee savings for the fund.
“We have the opportunity to increase our commitment. It’s a very high conviction manager and that’s the reason for the request,” said chief investment officer James Grossman.
Private equity director Darren Foreman, who also serves as the in-camera chair of New Mountain’s limited partner advisory committee, said the additional commitment dollars would mean an additional savings on fees.
The fund’s headline rates are a 1.75 percent management fee on committed capital during the investment period, followed by 1 percent on invested capital thereafter, an 8 percent preferred return and 20 percent carried interest, according to documents posted by Nebraska Investment Council in July.
PA PSERS will now pay a 1.55 percent management fee. Foreman said the discount would save the fund $2 million during the investment period.
Board designee Alan Flannigan, appearing for state secretary of banking and securities Richard Vague, asked whether there was any reason to be concerned New Mountain still had capacity to allow for a greater commitment instead of taking on other LPs. Both Grossman and Foreman stressed they had no concerns.
Foreman answered that there were no issues with the firm’s performance, but suggested that perhaps the long fundraise was due to the firm not marketing itself all that well despite its strong performance.
“I’m just glad that we’re able to recommend to the board a high-quality manager,” Foreman said. He later added that almost 100 percent of LPs from the firm’s previous fund had returned for Fund VI.
The firm was founded by Steve Klinsky in 1999, but he recently relinquished a third of his interest in the firm to his managing directors as well as a stake to Blackstone.
As of December 31, New Mountain’s previous fund, the 2017 vintage New Mountain Partners V, had a 15.7 percent net internal rate of return and a 1.20x multiple. Fund IV, a 2013 vintage, had a 22.9 percent net IRR and a 1.83x multiple.
New Mountain focuses on control investments in non-cyclical growth sectors, such as advanced materials, tech-enabled business services, consumer, financial services, healthcare, human capital management, information and data and specialized software. The focus is on businesses valued at $100 million to $1 billion, and New Mountain looks to acquire seven companies per year, investing $100 million to $500 million per deal.
New Mountain Capital did not respond to a request for comment for this story.
Action Item: read the PA PSERS materials on New Mountain Partners VI here.