Riverside fund hooks new LPs

Riverside Partners -not to be confused with its smaller market peer The Riverside Co. – closed an oversubscribed mid-market fund in May with $225 million in commitments. The vehicle, Riverside Fund III, exceeded the firm’s initial target of $175 million.

Limited partners in the fund include Abbott Capital Management, Hartford Investment Management, the Massachusetts Institute of Technology and MN Services, which is investing on behalf of undisclosed clients.

Other LPs include unnamed family offices, funds-of-funds, individual investors and university endowments.

The new fund has a much broader base of institutional investors, whereas the firm’s first two funds were backed by smaller groups that eventually decided to do away with their private equity allocations.

Riverside managed to gather a new bunch of LPs both through its use of San Francisco placement agent Probitas Funds Group and by informally using friends and advisors.

“From a strategic standpoint, we hoped that investors would like a differentiated fund in the middle market,” says Riverside General Partner David Belluck.

Riverside invests in health care and technology companies with sales between $10 million and $100 million.

Riverside typically invests in family-owned businesses and prefers that the founding seller remain with the portfolio company as a CEO or board member.

To gear up for an increasingly competitive Buyout environment, Riverside added Jon Lemelman, formerly of the private equity division of Fidelity Investments, as a general partner. He will focus on sourcing deals through business owners. In addition to Belluck and Lemelman, the other General Partner is Brian Guthrie.

The fund size represents a significant jump in capital compared to the firm’s previous vehicles. Riverside’s debut, Riverside Partners, closed on $46 million in 1989 and Riverside Partners II closed in 1999 with $68 million.

The firm started investing Riverside Fund III in the last quarter of 2005.

So far it has invested a combined $40 million in National Display Systems, a Morgan Hill, Calif.-based provider of flat panel displays used for medical purposes; Quantum Medical Imaging, which develops X-ray systems for doctors and hospitals in Ronkonkoma, N.Y.; and Albany, N.Y.-based Sixnet, which makes industrial automation and connection devices.