PE fund briefs, week of April 14, 2008

Morgan Creek flows toward $275M target

Morgan Creek Capital Management was expected to hold a first close on its third vehicle by the end of March as it continues to raise and deploy a fund of funds each year. The fund was targeted at $275 million. Last year the firm closed on $260 million for its second fund of funds, $10 million above target.

Similar to its preceding funds, the Chapel Hill, N.C.-based investment adviser and fund of funds manager has earmarked the new vehicle for a mix of buyout, real estate, energy and venture capital funds.

On the buyout side of the ledger, Morgan Creek favors shops that focus on the small end of the middle market, such as Monomoy Capital Partners, which recently received a commitment from Morgan Creek.

About half of the new fund’s capital will be invested in assets outside the United States. The firm recently expanded into Asia and has two principals, Managing Directors Nirav Kachalia and Jason Zhang, on the ground in China.

President and Chief Investment Officer Mark Yusko founded the firm in 2004 after six years as CIO at the University of North Carolina Chapel Hill endowment. Yusko also was an investment director at the University of Notre Dame.

CapitalSouth Reaches Home Stretch On Fund III

CapitalSouth Partners, which invests in buyouts and mezzanine financings of lower middle-market companies, is expected to close its third fund in May with as much as $330 million, according to a source close to the firm. The firm started fund-raising last year.

Charlotte, N.C.-based CapitalSouth focuses mainly on companies in the southern United States, but it does consider investments nationwide. The firm shies away from startup companies, turnaround opportunities and businesses outside the United States. CapitalSouth deploys $3 million to $15 million in most deals, but occasionally as much as $25 million.

Roughly a third of the limited partners in the new fund are small banks, which are kicking in about $100 million. The other $200 million comes in the form of loans from the U.S. Small Business Administration and another large lender, President and CEO Joseph Alala III recently told The Charlotte Observer.

Last year, in addition to launching the fund, CapitalSouth expanded the firm’s geographic footprint. In late 2007, Kenneth Berryman joined as a director and opened an office in Louisville, Ky., while Director Jay Turner signed on earlier this year to open an outpost in Dallas and source deals in the Southwest. The firm has seven investment professionals. The firm also has offices in Raleigh, N.C., and Tampa, Fla.

Greenwich shop to close inaugural fund

Mill Road Capital, which takes minority positions in small-cap public companies across a broad swath of industries, was preparing to close its first fund north of its $250 million target, according to a source familiar with the fund-raising effort.

Thomas Lynch, formerly the founder and managing director at Lazard Capital Partners, a buyout firm affiliated with investment bank Lazard, founded Mill Road in 2005. Lynch is also senior managing director of Mill Road Associates, a financial advisory services firm he founded in 2000.

Working alongside Lynch is Jack Roberts, managing director, who has 28 years of experience in telecommunications and related industries. Roberts also was director of finance at Baring Vostok Capital Partners, a Russian private equity firm, and a managing director at The Blackstone Group.

Lynch and the other partners had been investing their own money before raising their first fund. They are also significant investors in the fund. Triago, a Paris, France-based fund placement agency, helped raise the pool. So far, the firm as made more than 12 investments.