Kohlberg’s latest fund on track to meet $2bn target

Strong performance for the past couple of funds and a well-established leadership team should benefit the firm, which was founded by Jerome Kolhberg (pictured), during fundraising for its latest fund, Kohlberg Fund VIII.

Mid-market buyout firm Kohlberg & Company has had ups and downs since its founding in 1987, but with a now well-established leadership and senior investment team, it has made swift progress in its latest fundraising. 

Kohlberg Investors VIII, which launched earlier this year with a $2 billion target, recently held a first close on $1.7 billion. According to Securities and Exchange Commission filings dated 17 August, the fund and parallel vehicles have raised the amount from 85 investors, including the Teachers' Retirement System of Louisiana, which committed $75 million; and the Public Employee Retirement System of Idaho, which committed $50 million. 

This is the first fund since founder Jerome Kohlberg passed away last year.

The firm has several strong selling points, according to Kohlberg Investors VIII fund review document compiled by Hamilton Lane, which prepared the document to invest on behalf of TRSL, and obtained by Private Equity International.

Performance in the past decade has been robust. Kohlberg Investors VI, which closed in 2007 on $1.5 billion, was the firm's first fund to break the billion-dollar threshold. It generated a 16.7 percent net internal rate of return as of 31 December, according to the document, and has only one portfolio company remaining. 

Kohlberg Investors VII closed on $1.6 billion in 2012, beating its $1.5 billion target. The fund review document indicated it has already exited two of its nine investments as of 31 December, posting a 14.8 percent net IRR.

Kohlberg expects to pursue an accelerated divestment pace over the next three years, and since it considers the unrealised portfolio to be marked conservatively, this could boost returns for Fund VII and older funds.

The strength of Kohlberg's management team is another valuable asset on the fundraising trail. When James Kohlberg, Jerome Kohlberg's son and the firm's co-founder, stepped away from his daily involvement there in 2007, he passed the leadership to current managing partner Samuel Frieder. 

Partner and chief investment officer Gordon Woodward joined in the leadership three years later, according to the fund review document. Frieder and Woodward have now been at the firm for 27 and 20 years, respectively. The other investing partners, Chris Anderson, Seth Hollander, Benjamin Mao, Ahmed Wahla, and Evan Wildstein, have each spent at least a decade at the firm

The one challenge while fundraising may lie in the fact that Kohlberg has increased its target to $2 billion for Fund VIII from $1.5 billion for Fund VII. The fund document noted that the larger pool of capital is expected to result in an increase in the number of portfolio companies and in equity cheque sizes. Limited partners are often careful when a firm goes out of its sweet investment spot.

That said, when the firm increased its fund size to $1.5 billion from $800 million in 2007 with Fund VI, it ended up boosting results. The fund document also noted that the firm has progressively increased its deal size in its recent capital deployment and that it will remain focused on mid-market businesses.