The Banc Funds Co up to $388 mln on Fund IX

Launched in February, Banc Fund IX LP, earmarked largely for minority stakes in small banks based along the U.S. coasts, in the southeastern United States and in Texas, has a target of $500 million and a hard cap of $600 million. It reached a third closing earlier this month, and the firm expects to wrap up the fund next year, according to president and founder Charles J. Moore. The Chicago-based firm is not using a placement agent. Backers include Washington State Investment Board.

The Banc Funds Company has invested upwards of $4 billion through eight funds during its 28-year history, according to a Sept. 18 presentation made by Moore in New York City at the LP-GP Summit hosted by Thomson Reuters, publisher of Buyouts.

The sponsor’s long-term track is strong. Its cumulative return since 1986 has been 2,269 percent, and the net IRRs of all but two its funds have ranged from 15.4 percent to 20.6 percent, according to the presentation, which followed a “shark tank” format with Moore pitching his fund to a panel of investors.

The financial crisis of 2008 hit the valuations of banks particular hard, and The Banc Funds Company wasn’t immune from damage. The net IRRs of Funds VI and VII are both in the low single digits. But Moore pointed out that investors are on pace to recover their money on both pools—something not every financial specialist from that time period can claim. Fund VIII, a $650 million pool that closed in April 2008, got the firm back on track, posting a 17.2 percent net IRR.

The Banc Funds Company invests in small lenders, savings banks, thrifts and community banks in a market in which it can be difficult to find and price properties, said Moore. To avoid being regulated as a bank holding company, the sponsor limits its ownership to less than 10 percent of a bank’s equity, although Moore said his firm is usually the largest, if not the only, institutional investor in its portfolio companies—and certainly “the most knowledgeable investor.”

Moore said the firm has “outsized influence” at its companies, providing advice to its management teams on such issues as the proper amount of leverage, how to grow through acquisitions and how to be prepared for unexpected shocks. On the exit side, the firm typically takes advantage of consolidating regional markets to sell its properties to strategic acquirers.

The Banc Funds Company prides itself on its proprietary dataset of bank pricing data. In recent deals, Moore said, the firm has been buying banks at close to book value and selling them for more than 2x book value. Earlier this month The Banc Funds Company agreed to exit its investment in Bank of Kentucky through a $363 million sale to regional player BB&T Corp. Moore said the firm likely will see proceeds of $12.5 million to $13 million on its $7 million investment.