Vista changes Fund III terms, 8 years after final close

Vista Equity Partners changed the terms on its third flagship fund more than eight years after the vehicle held its final close on $1.3 billion, New Jersey State Investment Council documents show. Vista closed Fund III in late 2008.

The change will enable Vista’s in-house consulting team, Vista Consulting Group, to collect as much as $5 million per portfolio company each year without providing any form of offset to its limited partners, state documents show. Vista notified New Jersey of the change in November.

Consulting fees had been among the so-called other fees charged to Fund III portfolio companies that were subject to offset, according to New Jersey documents.

In exchange for collecting fees from Fund III portfolio companies, which came off the companies’ balance sheets, Vista would reduce the annual management fee it charged to the fund’s LPs.

Had those offsets not been in place, New Jersey would have paid Vista an additional $197,568 in management fees over the previous six years, State Investment Council documents show.

New Jersey committed $100 million to the fund in 2007. That commitment was netting a 2.57x total value multiple as of Oct. 31, pension documents say. Fund III had returned $226.8 million on $106 million of contributed capital.

Vista pushed for the amendment to make the consulting group’s fees consistent with that of other Vista funds, according to New Jersey investment council documents show. The state pension voted against Vista’s proposed changes to the fund’s terms.

In November, Buyouts reported that Vista’s latest fund — which is being marketed with a $10 billion hard cap — included a similar structure that would allow Vista Consulting Group to charge portfolio companies fees without providing the underlying fund investors an offset. At the time, one source with knowledge of the firm indicated Vista set similar terms on its previous funds.

A Vista spokesman did not respond to a request for comment.

Vista Equity Partners invests in software companies. Its consulting group is responsible for implementing Vista Standard Operating Procedures, or VSOPs, to which many LPs attribute the firm’s track record.

“The Vista guys really swear by that playbook approach,” a public-pension consultant told Buyouts in November. “They throw a ton of people at deals.”

Action Item: For more about Vista, visit www.vistaequitypartners.com

Robert Smith, founder, chairman and CEO of Vista Equity Partners, speaks at the Milken Institute Global Conference. Photo courtesy Reuters/Lucy Nicholson