Steadily growing Cove Hill, launched by ex-Bain exec, raising third fund in tough market

Cove Hill earlier this year invested in Incident IQ, a workflow management platform for K-12 school districts.

Cove Hill Partners, which offers long-hold flexibility for certain assets in its funds, is moving through fundraising on its third pool, which could close in the summer, sources told Buyouts.

The firm has steadily grown as it approaches its third pool. Generally, emerging managers are considered those investing funds one through three, after which the market considers them graduated into established manager status.

Emerging manager fundraising has steadily declined, falling to $25 billion last year from $47.6 billion in 2022, according to Buyouts data. LPs are content to stick with their deepest relationships, usually those with larger firms, making fundraising challenging for new or smaller shops.

Cove Hill, launched in 2017 by ex-Bain Capital executive Andrew Balson, is targeting $1.5 billion for Fund III, one of the sources said. It’s not clear if the fund has a cap. Cove Hill closed Fund II on $1.5 billion in 2020, and collected $1 billion for its debut fund in 2017, Buyouts previously reported.

The fund is expected to close this summer, maybe as early as June, though it’s not clear if that close would be an interim event or an end of the fundraising. A spokesperson declined to provide details of the fundraising.

Balson formed Cove Hill after spending 17 years at Bain Capital, including 13 as a managing director. He co-led Bain’s global PE investment committee process from 2011 to 2013, and its investing in tech, media and telecom and select consumer sectors from 2010 to 2013, according to Cove Hill’s website.

Other executives at the firm include head of consumer sector Zack Kaplan and head of tech investments Justin Roberts.

Cove Hill makes control investments and significant minority investments in North American businesses operating in the consumer products and services and tech and tech-enabled services industries.

A key aspect of the strategy is a long-duration focus. Fund I has a 15-year life, plus extensions. It also has an evergreen provision that allows portfolio companies to be held indefinitely. Cove Hill is cautious about doing deals, making one or two investments per year, with an emphasis on building a concentrated portfolio, Buyouts previously reported.

“The funds …may take 10 to 15 years or longer from the date of initial investment to reach a state of maturity when the applicable GP and the adviser determine that realization of the investment is desirable,” according to Cove Hill’s Form ADV.

In 2017, Balson told Buyouts he had been involved with “many businesses that continue to prosper and grow over really long periods of time,” especially with the support of a value-adding investor.

Despite the long-hold nature of the strategy, Fund I has delivered a DPI (distribution to paid-in) value of more than 1, one of the sources said, which means LPs in the pool have been paid back more than they contributed. “Fund I has been exceptional,” the source, an LP who has seen the fundraising pitch, told Buyouts.

Fund II is still “to be determined,” the source said about performance.

Cove Hill earlier this year invested in Incident IQ, a workflow management platform for K-12 school districts. Other investments in the portfolio include Encompass, Artlogic and SecureLink.