KPS collects $3.5bn in under three months

The firm hit its self-imposed hard-cap after just 10 weeks in market with Fund IV, which has a seven-year investment period and gives investors two options for management fee and carry terms.

The fundraise was over before most really begin.

KPS Capital Partners held a first and final close for its KPS Special Situations Fund IV Friday, raising $3.5 billion in just 10 weeks. KPS launched the fund with a $3 billion target and no official hard-cap, though the firm employed a “self-imposed” hard-cap of $3.5 billion. KPS did not use a placement agent.

Aside from the lighting quick marketing period, Fund IV is an unconventional private equity fund in that it has a seven-year investment period and gives investors two options for management fee and carry terms. The first calls for a 1.75 percent management fee with 25 percent carry, which mirrors the terms of KPS III, the second offers a 1 percent management fee with a 30 percent carry. 

“We were prepared to trade off a lower management fee for a higher carry and I think that’s an important part of this fundraise, providing our investors with that option,” KPS co-founder and managing partner Michael Psaros told Private Equity International.

Fund IV has not deployed any capital to date, as KPS is still investing its Fund III, which has enough capital for two more investment platforms. The firm closed Fund III in 2007 on $1.2 billion, but reopened fundraising for existing investors, eventually closing on an additional $800 million.

Psaros attributed the short fundraising process for Fund IV to KPS’ operations-driven investment strategy and long

We were prepared to trade off a lower management fee for a higher carry and I think that’s an important part of this fundraise, providing our investors with that option.

Michael Psaros

track record of successful investing.  

“Over the last couple of years across the portfolio we have returned over $2 billion of cash to our investors,” Psaros said, adding that the firm’s partners have been investing together for more than 20 years. 

Fund IV attracted commitments from both existing and new limited partners, and will invest using the same strategy as Fund III, focusing on control investments in corporate carve-outs, turnarounds, restructurings, bankruptcies and other special situations. 

Investments will require between $200 million and $400 million in capital per deal, according to documents from the New Jersey State Investment Council, which committed $200 million to the fund last month. New Jersey opted for the 1 percent management fee and 30 percent carry.

KPS will target opportunities in both North America and Europe, where the firm opened a Frankfurt office in 2011.

“We’ll deploy our capital where that capital will maximise returns, and we are seeing plenty of opportunities in both North America and Europe,” Psaros said.

KPS manages approximately $6 billion in assets through its special situations family of funds. Psaros, David Shapiro and Eugene Keilan founded KPS in 1997. 

Last year, Private Equity International’s readers voted the firm Special situations/Turnaround firm of the year in the US. Subscribers can read an in-depth profile of KPS’ investment in portfolio company Waterford Wedgwood here.