The New Jersey State Investment Council approved a $200 million commitment to KPS Special Situations Fund IV, which is targeting $3 billion for control investments in distressed or underperforming manufacturing businesses in the US and Europe.
New Jersey staff will finalise the commitment pending legal due diligence.
KPS has offered limited partners in Fund IV two options for management fee and carry terms, according to New Jersey documents. 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. New Jersey opted for the latter.
Higher carry dollars further incentivise the manager to perform to the best of their ability and not to become as dependent on management fees.
“From a risk/reward perspective the amount of management fees saved outweighs the potential increased carry paid in even the best return scenarios,” according to memorandum from Division of Investment director Tim Walsh. “Higher carry dollars further incentivise the manager to perform to the best of their ability and not to become as dependent on management fees.”
The memorandum goes on to mention that KPS had indicated it expects most limited partners to opt for the 1 percent fee/30 percent carry structure, as it poses a better alignment of interest for LPs.
Walsh also cited KPS’ “proven & successful value-add investment strategy” in the memo, which notes that the aggregate EBITDA of KPS Fund II and KPS Fund III with its sidecar fund had grown by approximately 4.6x and 4.1x, respectively.
KPS will target between 15 and 20 investments for the fund, which will require approximately between $200 million and $400 million in capital per deal, according to New Jersey documents.
Investment staff at the meeting indicated Fund IV will be heavily oversubscribed
New Jersey documents list KPS co-founders and managing partners Michael Psaros and David Shapiro as key investment professionals on the fund along with firm partners Raquel Palmer and Jay Bernstein.
New Jersey’s $72.5 billion Division of Investment committed $25 million to KPS’s previous fund, which had generated a 1.7x multiple and 21.7 percent net internal rate of return, according to Division of Investment documents.
Bain Capital has also offered options for LPs in its latest offering, Fund XI, targeting $6 billion. The firm is offering three classes of fees: Class A will get 1.5 percent management fee and 20 percent carried interest with a 7 percent preferred return; Class B gets a 1 percent management fee, 30 percent carry with a 7 percent preferred return; and Class C offers a 0.5 percent management fee, 30 percent carry and no preferred return.