How Cove Hill raised a $1bn debut fund in three months

Bain Capital veteran Andrew Balson tells Private Equity International why he focused his fundraising on endowments, foundations and family offices and didn’t offer co-investment opportunities.

Private equity firm Cove Hill Partners, which was formed earlier this year by Bain Capital veteran Andrew Balson, closed its debut fund last week on more than $1 billion, exceeding its hard-cap in a matter of months.

Cove Hill Partners Fund I, which has a 15-year life and will focus on long-term investment opportunities, has an evergreen provision that allows it to own investments longer than the fund life.

The Boston-based firm gathered money from family offices, university endowments and foundations to make five to eight investments in the consumer and technology sectors in North America. The firm did its own fundraising and is now in early stages of identifying investment opportunities.

Can you give us a sense of the reception when you raised your fund?

We targeted a specific type of investors, and what was very encouraging to us was that we got great reception among them. We have individuals, family offices and endowments who are anchors and all reasonably quickly got excited about what we’re doing and came in early.

We had formal conversations with our anchors in March, then we didn’t have formal documentation ready until April, and really by June we were pretty well fully subscribed. We started doing documents and so forth over the summer. We were fortunate.

The initial target was $850 million, the hard-cap was $1 billion and we raised $1.05 billion to accommodate a couple of investors that we really wanted to have as part of our programme. There’s of course a significant GP commitment.

Why did you focus more on foundations, endowments and families rather than pension plans?

There’s a certain type of investor who share the same objectives that we do. They’re not focused on liquidity per se in the private equity portfolio. They’re focused on value creation in the private equity portfolio. For them, this notion of having the opportunity to hold businesses for a long period of time – we’ve seen the risk return in these businesses remain attractive – is an appealing thing. We have a group of investors who understand very clearly our objective and who are really aligned against that objective. They all have really long-term goals. The way they think about measuring their performance is not quarter to quarter and year to year; it’s really over several years and in some cases over decades.

For me it was reasonably clear that charitable and university endowments and families do think with a very long-term perspective and are pretty consistent about that. You can see that with some families who have made their money over decades and generations.

Did commitments involve co-investment agreements?

We were very upfront with people saying we’re not aiming to create co-investment opportunities. We intend to build a reasonably concentrated portfolio in our fund so we have some size parameters that we’re working around. We’re going to basically focus on the investments that fit those size parameters. If there comes a point when we sign something that’s a little bigger and need some co-invest, we might do that but we haven’t cut any special deals with our LPs and there’s no co-invest promise. Of course there were questions, but our investors really understand what we’re trying to do.

Andrew Balson spent 17 years at Bain Capital and has been on the board of Domino’s Pizza since 1998. His founding team is led by Justin Roberts, managing director and co-lead of technology, who has worked at General Catalyst and TA Associates; Lara Moskowitz, chief operating officer who comes from General Atlantic; and Keith Power, who joined as chief financial officer from Summit Partners.