Genstar eyes as much as $3.5bn for Fund VIII

Genstar Capital Partners VIII has a $3bn cap and plans to raise additional co-investment capital for a planned final close in March.

Mid-market firm Genstar Capital Partners is seeking $2.5 billion for its eighth growth buyout fund that launched last month, with a cap of $3 billion, Private Equity International has learned.

The Nebraska Investment Council staff planned to approve a $50 million commitment to Genstar Capital Partners VIII as part of its $150 million proposed private equity commitment pacing for 2017, according to a 22 February meeting material prepared by advisor Aon Hewitt.

The document said the fund launched in January with an anticipated first and final close at the end of March.

Genstar was unavailable to comment.

It added that San Francisco-based Genstar also plans to raise $400 million to $500 million in co-investment capital to go with the main vehicle, indicating the possibility that the fund could be sized at as much as $3.5 billion.

Aon Hewitt indicated this size is a concern, because it’s a potential 67 percent increase from the previous fund, Genstar Capital Partners VII, which closed on $2.1 billion in August 2015. It also cited Genstar as saying the firm missed out on several investment opportunities because of its limited size in previous funds, so it wanted a larger pool of capital for Fund VIII.

Although Genstar doesn’t plan to make larger deals with Fund VIII, the latest fund will make more deals, at about 12 to 14 platform acquisitions, than Fund VII, which is expected to have 10 or 11 platforms, the document said. The GP did, however, raise the average investment size from Fund VI to Fund VII, more than doubling it from $77.5 million to $165 million, the document said.

In terms of investment strategy, however, the fund will stay in line with its predecessors. It will target North American companies with an enterprise value of $50 million to $750 million in the financial services, software, industrial technology and healthcare sectors. Its typical deal size will be between $150 million and $300 million for growth and buyout investments, the document showed.

It is also aligned with the typical private equity fund structure with an 8 percent preferred return and 20 percent carried interest, though it charges 1.75 percent management fee throughout its investment and harvest periods.

Fund VIII is accepting a minimum of $10 million per limited partner commitment, and Genstar expects all existing LPs to re-up to the eighth fund, the document said, noting that the general partner will contribute 3 percent to 5 percent of commitments.

According to PEI data, Oklahoma State Regents for Higher Education has committed $6 million to Fund VIII. Investors in previous funds include Alaska Retirement Management Board, Public Employees’ Retirement System of Nevada, Danish pension PKA AIP and San Bernardino County Employees’ Retirement Association.

In addition to the LP and GP commitments, Fund VIII has the ability to use a line of credit for up to 30 percent of the commitments, an increase from a 25 percent cap on Genstar Capital Partners VI and VII.

The most recent fund, Genstar Capital Partners VII, was 71 percent invested to-date, and had exited from one portfolio company, software provider for religious institutions Ministry Brands, according to a separate document for the 22 February meeting.

An earlier fund, 2007-vintage Genstar Capital Partners V, was generating a net internal rate of return of 15.2 percent as of 30 September, the second document indicated.A Securities and Exchange Commission filing from 23 January indicated Fund VIII hadn’t received a commitment at that time, and had hired Evercore Group as its placement agent.

Genstar manages $5 billion in assets, according to the meeting materials.