TA closes unique double-down fund on $1 bln

TA Associates in November quietly closed its fund that doubles down on investments the firm is selling out of its flagship funds, sources told Buyouts. TA Select Opportunities Fund closed on its target of $1 billion, sources said. Buyouts exclusively reported that TA was raising the fund last year.

TA recently used the fund to reinvest in MRI Software as part of a larger transaction in which Harvest Partners invested in the company. Harvest joined TA and GI Partners as investors in the company, which provides real estate and investment management software to real estate owners, investors and operators.

The fund has been touted by some investors as a way for the firm to deliver liquidity back to investors as it sells a portfolio company while keeping a stake in the business. Select Opportunities targets growing companies that have already met the firm’s return expectations, according to TA’s Form ADV.

Select Opportunities Fund will not charge LPs a management fee, but will collect fees from portfolio companies, according to a source and the Form ADV. The fund charges a 20 percent carried interest rate.

Target investments will involve TA portfolio companies held by the firm’s main equity fund that are being sold to third-party investors. In such deals, TA’s main fund would likely retain a minority stake, with the Select Opportunities Fund co-investing in the company alongside the third-party investor, the two sources previously explained to Buyouts.

“[TA is] doubling down on the company with a new buyer,” one of the sources said. What they’ve recognized is that “some of their companies are really good, and someone else pays a big price for them, and with some of the companies, the new buyer makes a lot of money on it as well.”

The strategy comes with risks, as TA outlines in the Form ADV, including the challenge of generating high returns on companies that have comparatively higher enterprise values than those that the main fund targets. “The possibility of generating breakout returns is less likely,” according to the Form ADV.

Other risks include potential conflicts of interest with third-party investors that already have a relationship with TA through prior investments; a potentially limited number of opportunities, especially considering each deal would require a third-party lead investor; and TA’s reduced influence on the investments as a minority investor.

“Due to its minority position, the SOF Funds may have no right to exert significant influence, including having less influence to mandate initiatives to drive growth in any portfolio company, or protect its position in such portfolio companies,” according to the Form ADV.

A TA spokesperson declined to comment.

Action Item: Read TA’s Form ADV here: https://bit.ly/36eKPZK