Palladium Equity Partners' focus on mid-market companies servicing the US' growing Hispanic population is resonating with some investors; the New York-based firm is roughly halfway to the $800 million target for its Fund IV, according to sources familiar with the fundraise.
Palladium declined to comment.
The firm held a first close in July 2012 on about $200 million and has collected $332 million in commitments so far, with as much as $100 million in pending commitments, according to one source. Another source noted the fundraising has to be closed by year’s end.
Palladium is working through the challenges of the tough fundraising environment, which has made the process a slog. However, the firm’s past performance has been strong. Fund III closed on $775 million in 2005 and Fund II closed on $231 million in 2000. Fund III was generating a net 18 percent internal rate of return and a 1.8x multiple as of December, while Fund II was producing a net 11 percent IRR and a 2.4x multiple as of the same date, according to sources.
[Palladium] is not a hard sell with people looking toward the future, and if they have a particular place in the portfolio for that strategy.
Fund III is one of the top-performing funds in the “proactive portfolio” at the California State Teachers’ Retirement System, which is the system’s emerging manager investment portfolio, according to Solange Brooks, who is in charge of CalSTRS' emerging managers programme.
“[Palladium] is not a hard sell with people looking toward the future, and if they have a particular place in the portfolio for that strategy,” Brooks said. “Their fund is [focused on] new drivers of value creation due to changing demographics.”
CalSTRS, which committed $100 million to Fund IV, “liked the innovative strategies, and the fact that they are focusing on the Hispanic market, a growing market, and that they are a very good team — they are intelligent, top-notch innovators who have the pulse of the changing demographics now occurring in this country and the opportunities this presents in private equity,” Brooks said.
Formed in 1997, Palladium made its first investment from Fund IV in December, injecting $45 million into Hy Cite, a company that markets cookware to the Hispanic market. The firm took a 32.1 percent ownership stake in the company through the investment, according to a market source.
Last year the firm returned $317 million in distributions to limited partners, sources said, including $33 million from the initial public offering of portfolio company Regional Management, where Palladium remains the largest shareholder. The firm also distributed $111 million from the high yield dividend recapitalisation of American Gilsonite, sources said, and still remains the largest shareholder in the company, retaining more than 90 percent of the company.