Red Iron Group, formed last year by two executives from Accel-KKR, has been raising its debut fund that has the flexibility to hold certain assets longer than traditional fund structures.
The structure is an example of efforts many GPs are making to find ways to extend their holds over treasured portfolio companies. Managers have made use of the secondaries market for longer holds, but a few have built such flexibility into the structures of their funds.
It’s interesting to see a first-time fund make use of such a mechanism, when many first-timers are reluctant to diverge from well-tested market models with which potential investors are comfortable. First-time fundraising overall is more challenging than for more established groups, and has only gotten tougher in the uncertain economy, as LPs stick with their strong-performing, long-time partners.
Red Iron was formed in 2020 by Ben Bisconti and Jason Klein, who are the principal owners of the management company, according to the firm’s Form ADV. The firm expected to commence investment activities around the beginning of the year, the Form ADV said.
Fund I collected about $233 million as of February on a $300 million target, according to a Form D fundraising document. The firm is working with Brooklands Capital Strategies on the fundraising, the document said. It’s not clear if the fund is closed or has hit the target.
No one from the firm returned a comment request Tuesday.
The firm invests in lower mid-market companies with revenues between $10 million and $250 million, including control buyouts, take-privates and corporate carve-outs. Red Iron targets sectors “where investments in technology can increase the competitive advantage of a business,” and “sectors across the economy with durable end-market opportunities,” the firm said on its website.
Bisconti worked at Accel-KKR from 2003 to 2014, leading investments in companies in enterprise software, cloud computing, internet services and software-as-a-service, according to his bio on the website of the Berkeley Endowment Management.
Klein joined Accel-KKR in 2005 as a vice president, after working at Goldman Sachs, according to his LinkedIn profile. He worked as managing director from 2008 to 2021, and has been a senior adviser starting last year, the profile said. Klein has sat on the boards of iMed, Integrichain, Kerridge Commercial Systems, Paymentus, Smart Communications and TrueCommerce, according to an archived version of Accel-KKR’s website.
Red Iron will have the ability to transfer some or all of the fund assets into a continuation fund-like vehicle that will allow for a longer hold, according to an LP and the firm’s Form ADV. In these cases, the manager could offer existing LPs liquidity for their stakes in the asset and bring in outside investors, like in a more traditional continuation fund secondaries deal, according to the LP. It’s not clear if the firm needs approval from LPs to make the transfers. The firm said in the Form ADV it can effect such transfers “at its sole discretion.”
“They’re pre-wiring some of the stuff we see happening with secondary firms,” the LP said.
Cove Hill Partners, formed by ex-Bain Capital executive in 2017, also built in the ability to hold certain assets longer than traditional fund structures. Its first fund had a 15-year fund life plus extensions, as well as evergreen provisions that allow portfolio companies to be held indefinitely.