HM Capital spin-out gets $35m from Dallas police

Kainos Capital, which is targeting $400m for its debut fund, is working to convince LPs that the team’s long experience investing in food and consumer products will translate to strong returns.

Kainos Capital, which spun out of HM Capital Partners, received a $35 million commitment from the Dallas Fire and Police Pension System as it works to raise its $400 million debut fund. The commitment was approved by the pension system board earlier this month, but is pending final negotiations, according to minutes from the board meeting.

The food and consumer products group from HM Capital, led by Andrew Rosen, spun out of HM Capital earlier this year. Rosen, managing partner at Kainos, established the US food and consumer products group at HM Capital. Kainos has held a first close on $100 million.

People have to eat; it's a basic necessity of life. These companies tend to behave differently; in cycles, they continue to grow.

Market source

Dallas Fire and Police fund also invested in HM Capital’s Sector Performance Fund, which closed in 2008 on $780 million. That fund has struggled and was producing a negative 17.2 percent internal rate of return and a .66x multiple as of 31 March, 2011, according to documents from the New York City Teachers’ Retirement System.

Kainos’ challenge has been to convince prospective limited partners that the food and consumer products team at HM Capital was responsible for strong performance, even if the overall HM Capital fund doesn’t look so great. Rosen is joined by Robert Sperry, partner, who was an operating partner at HM Capital and now leads Kainos’ operational focus. Also joining the team was Sarah Bradley, partner, who heads up investor relations.

“The food franchise at HM has been the consistently successful franchise at that firm for over 20 years in the US,” according to a person who has heard the fund pitch. “They’ve never lost money on a food deal in the US … almost every exit has been to a strategic or trade buyer” rather than to another private equity fund.

Kainos is touting its sector expertise, which includes food manufacturing and consumer products like household or personal care items. The sectors, especially food manufacturing, which includes companies that make food products like organic packaged salad, whey protein ingredients, drink mixes, instant oatmeal and condiments, are resistant to economic cycles, according to sources familiar with the firm’s thinking.

“People have to eat; it’s a basic necessity of life. These companies tend to behave differently; in cycles, they continue to grow,” said one market source.