HGGC expands LP base to Asia with Fund III

HGGC Fund III, which closed on $1.84bn, received the firm’s first LP commitments from Japan and Korea.

Mid-market firm HGGC has expanded its investor base to Asia through the raising of HGGC Fund III, which closed on Thursday on $1.84 billion.

The Palo Alto-based firm launched the fund on 6 September with a target of $1.5 billion and a hard-cap of $1.75 billion, according to a statement from the firm. The total amount of $1.84 billion includes the general partner commitment.

HGGC managing director and chief operating officer Les Brown told Private Equity International that Fund III marks the first time the firm's limited partner base has expanded into Japan and Korea.

According to the statement, Fund III raised $1.25 billion in commitments from returning investors and $500 million from new LPs.

PEI data indicates that Pennsylvania Public School Employees' Retirement System (PSERS) is an LP in Fund III.

“We identified Asia as a place to get a toehold,” Brown said. “We were strong in the US, Canada, western Europe and had some exposure in the Middle East that we expanded also in Fund III. But we hadn't expanded at all into Asia. The US mid-market exposure is what they were looking for, and I think LPs in general believe outsized returns are still possible in the mid-market more so than in the larger end, as fund sizes grow.”

He added that investors appreciate HGGC's discipline with fund size, maintaining its strategy of targeting companies with an enterprise value of about $500 million for Fund III and deploying on average $125 million in equity per transaction. The latest fund hasn't made any investments, he said.

HGGC focuses the information services, information technology, tech-enabled businesses, business services and industrial services sectors, Brown said.

HGGC's current portfolio includes senior life and health insurance distribution platform Integrity Marketing Group, consumer and business-to-business survey research platform provider Survey Sampling International and automotive digital marketing provider Dealer-FX, the statement noted.

“We're looking for business people using technology to disrupt or drive change in their respective industries,” Brown said, acknowledging that tech-related sectors have seen high valuations due to demand.

HGGC's partnership model is structured so that the seller re-invests in a minority position alongside HGGC's control investment, allowing the seller to focus on long-term outcome of the company rather than squeezing the last dollar in the deal, he added.

The previous fund, HGGC Fund II, closed on $1.33 billion in March 2015, above its $1 billion target and above the $1.1 billion raised in 2008 for Huntsman Gay Capital Partners Fund I, according to PEI data. Huntsman Gay had renamed itself to HGGC after the departure of co-founder Robert Gay in 2013, according to reports.

Brown noted that Fund II is more than 90 percent invested, and will look to make one more platform investment.

Investors in Fund II include Swedish public pension AP Fonden 3, PSERS, British public pension West Yorkshire Pension Fund, Belgian investment firm Brederode SA, French insurer CNP Assurances and Danish pension PKA AIP, according to PEI data.

HGGC manages $2.4 billion in assets, according to PEI data.