Clearlake could close above $2.5bn target for Fund V

The special situations investment shop is expected to invest in fewer than 20 companies.

Clearlake Capital Group is on track to surpass its $2.5 billion target for its fifth flagship fund, which will target distressed debt and special situations investments, according to a source familiar with the matter.

The Santa Monica, California-based firm’s Clearlake Capital Partners V will almost double the size of Fund IV, which closed at $1.4 billion in September 2015, though Fund V’s final number could be higher.

The vehicle will target gross returns in excess of 25 percent with control-oriented investments that have a three- to five-year hold period, according to pension fund documents from the Pennsylvania Public Schools Employees’ Retirement System, which green-lit a commitment of up to $200 million.

Clearlake could not be reached for comment.

The fund has a 10-year life, divided evenly between the harvest and investment periods, along with two optional one-year extension periods, according to public documents filed with the Arkansas state legislature.

Clearlake is charging a 1.75 percent management fee on committed capital during the investment period, followed by a 1.75 percent on invested capital during the harvest period. The firm is also receiving a 20 percent carried interest, subject to an 8 percent hurdle rate. Fund IV has generated a net IRR of 42.9 percent and a net multiple of 1.4x, the Pennsylvania documents showed.

Capital can be deployed up and down the capital structure, including both secured and unsecured debt along with common equity. Investments could also debtor-in-possession facilities, used in Chapter 11 cases to help the bankrupt company keep operating, along with bilateral credit facilities.

The fund will consist of 14-18 deals, of which half would be special situations or value private equity plays. The remaining half would be equally split between distressed debt investments in the primary and secondaries markets. Investments will be between $50 million and $175 million in companies with enterprise values of between $100 million to $750 million.

Businesses targeted will include those going through a bankruptcy or restructuring; those in legal or regulatory trouble; those having trouble meeting growth goals; and those in transition, such as companies being carved out or divested, according to the PSERS documents.

Other than Pennsylvania, the vehicle attracted commitments from the Los Angeles County Employees’ Retirement Association (a $125 million commitment), the San Francisco Employees’ Retirement System ($100 million), the Arkansas Teachers’ Retirement System ($60 million) and Houston Municipal Retirement Fund ($20 million).

In April, Landmark Partners purchased a 20 percent stake in Clearlake from Reservoir Capital, which seeded Clearlake’s $180 million debut fund, according to sister publication Secondaries Investor.

Clearlake was founded in 2006 and manages $3.5 billion in assets.