Stellex’s Fund III, capped at $3bn, expected to raise $1.5bn in first close

Stellex Capital Partners III, launched last year, is set to bring in $1.5bn of a $2.5bn target in a first close sometime later this year, sources told Buyouts.

Stellex Capital Management is expected to raise a big chunk of its third flagship offering’s target in a first close, sources told Buyouts.

Stellex Capital Partners III, launched last year, is set to bring in $1.5 billion of a $2.5 billion target, sources said. The close is expected to take place sometime later this year.

The New York manager capped Fund III at $3 billion, according to Connecticut Retirement Plans and Trust Funds documents. The target was reported by Buyouts last November.

In an uncertain market that includes stopped-up exit channels, many private equity firms are hard-pressed to monetize a growing backlog of portfolio investments. This has resulted in fewer distributions from GPs to LPs, creating liquidity issues contributing to a slower pace of fundraising.

Stellex, an investor in complex, underperforming industrial businesses, is among those addressing monetization challenges, CRPTF documents said. While Stellex Capital Partners I is performing strongly, the documents said, it had as of September 2023 generated “limited realizations.”

Recent fund performance

  • Stellex Capital Partners I (2015 vintage): IRR: 23.77%; TVPI: 1.92x
  • Stellex Capital Partners II (2021 vintage): IRR: 8.06%; TVPI: 1.09x

Source: Buyouts data as of June 30 and September 30, 2023, citing various public pensions. Subscribers can view here.

CRPTF documents attribute this to the influence of post-pandemic supply-chain disruptions on Stellex’s industrials strategy. However, the firm is expected to stay focused on generating liquidity “at attractive valuations” over the next 12-18 months, the documents said.

In fact, in the second quarter, Stellex generated realizations across two Fund I companies, the documents said. One of them may be Officine Maccaferri, a sustainable engineering solutions provider, which Carlyle Global Credit, Stellex and Man GLG agreed to sell to Ambienta earlier this year.

Another might be a single-asset continuation vehicle, announced in April, that acquired interests in Fenix Parts, a recycler and reseller of OEM automotive parts. Fund I’s DPI is in line with peers in this market, sources told Buyouts.

Stellex was founded in 2014 by managing partners Ray Whiteman and Michael Stewart, who previously led Carlyle Strategic Partners, the private equity giant’s distressed and special situations group.

Mark Redman, OMERS’ global head of private equity before joining the firm in 2022, is the third manager partner and head of Europe.

Stellex makes control investments in North American and European mid-market companies experiencing some form of financial, operational or industry-driven underperformance, often as a result of cyclical change or mismanagement. Also in the mix are sound businesses with too much leverage.

Targets typically have revenue of $100 million to $500 million and operate in sectors like specialty manufacturing, industrial and business services, aerospace and defense, automotive, government services, transportation, logistics and food. Preferred deals include recaps, carveouts and debt-for-equity swaps.

Fund III will invest $75 million to $150 million in 17 to 23 platform companies, CRPTF documents said, targeting a 3x gross multiple. For the vehicle’s first close, Stellex is offering LPs a 10 basis-point fee discount, as well as a 15 basis-point discount to those committing greater than $100 million.

Stellex declined to provide a comment on this story.