Riverside closes its largest micro-cap fund to date

Riverside Micro-Cap Fund IV closed on $650m, including a 5% GP commitment, and has already made two platform acquisitions so far.

Mid-market firm The Riverside Company has closed Riverside Micro-Cap Fund (RMCF) IV on its $650 million hard-cap.

Riverside managing partner Loren Schlachet, who is based in Los Angeles, told Private Equity International that Riverside began fundraising for RMCF IV in early summer of 2015 and made a 5 percent GP commitment, as it has done in the past.

The total raised for RMCF IV reflects nearly double the amount raised by its predecessor, RMCF III, which closed on $350 million in 2014. 

“The larger size [of RMCF IV] is just a reflection of the bigger team we have now,” Schlachet said. “It’s not an indication of Riverside changing its investment strategy.” 

RMCF III was set up as a small business investment company that received an extra $150 million from the US Small Business Administration, essentially making it a $500 million vehicle, according to Schlachet.

Due to the quick launch of RMCF IV following the third fund, he said the fourth fund was not able to become an SBIC due to time constraints, although Riverside expects to launch another SBIC in the future.

The latest micro-cap fund also beat its $500 million target, thanks to commitments from both new and returning investors. Schlachet said the “vast majority” of existing limited partners committed to the latest fund, but given the increase in the fund size, about half of the LPs in RMCF IV are new investors.

A Riverside statement said LPs in the fund include investment manager Makena Capital, clients of investment firm Partners Capital Investment Group, the State of Michigan Retirement System, and clients of advisory firm Willis Towers Watson.

According to PEI data, the Maine Public Employees Retirement System and Missouri Local Government Employees’ Retirement System also committed $60 million and $31.5 million to the fund, respectively.

The new fund will invest in North American companies with up to $7 million in EBITDA, the statement said.

Schlachet said it has already made two investments, including an investment in The Dermatology Group in New Jersey and in financial training tool provider Kasasa. He added that RMCF III is fully deployed in its platform acquisitions, but will continue making add-on acquisitions.

Riverside’s family of micro-cap funds launched in 2005, initially targeting companies with up to $5 million in EBITDA, according to PEI data.

According to documents from the Employees’ Retirement System of Rhode Island, which committed $20 million to RMCF III, the third micro-cap fund was generating a 12.7 percent net internal rate of return, as of 31 March 2015.

Riverside makes both control and non-control investments in companies with a maximum enterprise value of $400 million. Aside from the micro-cap series, Riverside also has Riverside Capital Appreciation Funds, which launched in 1988 and targets companies with EBITDA between $5 million and $15 million, according to PEI data.

Riverside Europe Funds launched in 1997 to target European companies with EBITDA of between €3 million and €15 million. Riverside Asia Funds launched in 2007 and focuses on Japanese and South Korean companies with less than $10 million in EBITDA, according to PEI data.

PEI data also indicates Riverside is currently fundraising for Riverside Europe Fund V, which had raised €125 million as of June. It is targeting €450 million.