Cairngorm holds final close on Fund II – Exclusive

The haul includes £100m of institutional capital for its second vehicle, PEI has learned.

Cairngorm Capital Partners has held a first and final close on its second fund on its £107.5 million ($134 million; €125 million) hard-cap, Private Equity International has learned.

Every limited partner in Cairngorm Capital I has confirmed an increased commitment to Cairngorm Capital II, which was over-subscribed. The firm has around 12 investors in its LP base, which is split between US endowments and European funds of funds. One new investor, a US endowment, committed to Fund II, managing partner Andrew Steel told PEI.

Of the total amount raised, £100 million comes from institutional investors, while the extra £7.5 million comprises the GP commitment and investments from friends.

The fund has an eight-year life – a four-year investment period and a four-year harvesting period – and will look to make four to five investments, writing equity cheques of around £20 million.

The firm’s debut fund closed on £52.5 million in September 2015. Investors in that fund increased committed capital by 40 percent to £73.5 million to allow the fund to pursue further bolt-on acquisitions. Cairngorm began talking to investors about a second fund in December 2016.

Acanthus Advisers worked as placement agent for the fundraise.

“Each of Cairngorm Capital’s investors renewed and increased their trust and confidence in the team’s ability to deliver on a distinctive and focused strategy for operational value-creation and growth,” Acanthus managing partner Wilf Wilkinson said in a statement.

“Recognition of the sheer strength of the offering that Cairngorm Capital is able to bring to its investee companies is what enabled us to raise Fund II so quickly.”

Steel told PEI that although it might be possible to raise a larger fund, if fund sizes grow too much, too quickly then “you will abandon the investors that backed you in the beginning”.

“We know what our investors want us to do,” Steel said. “If they tell us to limit the size of the fund, we will listen to that quite carefully.”

Steel said the management fee is “not untraditional”. The fund will have a ratcheted carry structure, with preferred return hurdles based on both money multiple and internal rate of return.

Steel declined to reveal the specifics of the hurdles or the rates of carried interest attached. He also declined to disclose the firm’s return expectations for the fund, although he said Cairngorm would not look at a deal unless it could “see a path to making more than 5x over time”.

Cairngorm was founded by former HIG Capital partner Steel and invests in UK-headquartered businesses with operating profits of between £2 million and £20 million in manufacturing, distribution and services industries.

The firm is wants to invest in profitable business that are “relatively undermanaged”, Steel said. One of the firm’s portfolio companies is Customade Group, an independent trade windows and door manufacturer.

Fried, Frank, Harris, Shriver & Jacobson provided legal advice on the fundraise.