PE fund briefs, week of May 26, 2008

Evercore shelves third fund

Evercore Capital Partners, the buyout arm of boutique investment bank Evercore Partners, has delayed raising its third buyout fund because of co-founder Austin Beutner’s decision to retire.

CEO Roger Altman discussed the decision during a quarterly earnings conference call on May 12. Beutner was the head of Evercore Partners’ investment management business, which included Evercore Capital.

Altman said the firm held a meeting with its limited partners about three weeks prior to the earnings call to discuss the best strategy following Beutner’s decision to retire, which took effect May 1.

“What we’ve decided to do is to augment our private equity team and take a timeout on fund-raising until that’s completed,” Altman said during the conference call. The group is also closing its Los Angeles investment office and consolidating its operations in New York.

The firm had launched fund-raising for its third fund, ECP III LP, targeting $700 million with the ability to raise $1 billion. Evercore Capital targets mid-market companies with enterprise values of at least $100 million. Most recently it acquired Bollinger Inc., a Short Hills, N.J.-based insurance broker, for $250 million.

Beutner announced his retirement in April after undergoing a series of medical procedures in mid-December following a bicycle accident. He expects to make a full recovery. Altman paid tribute to Beutner during the conference call, calling him “a brilliant banker, a brilliant investor, a wonderful long-term thinker.”

Evercore Capital plans to add another partner and resume raising the third fund by the end of the year. Fund-raising will run into 2009, Altman said.

Altman also mentioned that he will be in charge of marketing the fund when it relaunches.

“I’m not good at a lot of things, but I am good at marketing,” he said. —Bernard Vaughan

TH Lee affiliate targets credit fund at $2.5B

THL Credit Group is targeting $800 million in equity for its THL Credit Partners LP fund. With leverage, the fund will come in at about $2.5 billion, according to sources familiar with the situation. The group is about halfway to $800 million and expects to hold a second close in the next month.

Executives at the firm declined to comment.

The fund, THL Partners’ first debt-oriented vehicle, invests in new leveraged loans, structured credit, mezzanine financing and minority investments.

The fund is soliciting typical buyout fund investors as opposed to just investment banks, which provided the capital for the first close. A source familiar with the firm says that that the response has been “gratifying,” but conceded some limited partners are apprehensive because of the potential for lackluster returns from some credit funds investing in highly levered, low-covenant, LBO-backed debt.

THL Partners formed the Boston-based credit group last summer. Prior to joining the group, James Hunt, CEO, was CEO of Bison Capital Asset Management, which he co-founded in 2001. He was also previously the CEO and chief investment officer at Evercore Investment Corp. —Bernard Vaughan

Castle Creek banking on $500M

Castle Creek Capital, a private equity firm that invests in banks, is looking to raise a new $500 million fund, says a person familiar with the firm.

The fund will be used to invest in community banks, for both recapitalization and consolidation, said the source. The fund-raising process is expected to begin next month, the source said. The Rancho Santa Fe, Calif.-based firm raised $175 million for fund III, which closed in 2006.

Castle Creek is one of the few private equity firms that make controlling investments in banks and other financial institutions. But as bank stocks sink amid the credit crunch, additional private equity firms may be eyeing investments in the sector. Fopr example, last month, Washington Mutual Inc. and National City Corp. each raised $7 billion, including minority investments from buyout firms.

Castle Creek, which became a bank holding company in 1995, has said it has been approached by other buyout shops looking to invest in banks, as well as institutions looking to raise funds. —Thomson Reuters wire report

Capital Group raised $2.5B for emerging markets

London-based Capital International, which is part of The Capital Group Cos., raised $2.25 billion for private equity investments in such emerging markets as China and India. It is four times the size of its previous fund. Capital International already has committed about 25% of the fund in six investments.

The fund collected commitments from more than 70 institutions, including the Pennsylvania Public School Employees’ Retirement System and Lockheed Martin Corp. Master Retirement Trust. It is the fifth private equity fund raisedd by the Capital International, which has invested $1.8 billion in 67 companies since 1992. Capital International raised $618 million for its previous emerging markets fund.

“The universe we’re talking about is half the global economy,” said Jim McGuigan, a Capital International partner. “The countries are becoming much stronger and much more fiscally responsible.”

(To read more about what McGuigan has to say about investing in emerging markets, see the Q&A on page 3).

Investcorp mulling distressed debt fund

Investcorp, a Bahrain-based investment bank, is considering setting up a $1 billion distressed debt fund. A spokesman told Thomson Reuters wire service that the fund management team would include arbitrage specialist John Paulson, who made billions of dollars last year by betting against the U.S. housing market.

Paulson’s hedge fund group quadrupled in size last year on the back of the credit crisis. Paulson manages about $30 billion in assets and counts former Federal Reserve Chairman Alan Greenspan as an adviser.

Investcorp, which similar to Paulson, benefited from betting against the subprime credit market albeit to a smaller degree, specializes in investing Arab wealth outside the region.