Pfm: What was the timeline like for raising Fund II?
Hain: We started contemplating things in the fourth quarter of 2014 and we started talking to our placement agent Brooklands Capital Strategies around that timeframe. We began to pull materials together and work on a private placement memorandum (PPM), which all culminated in a March 2015 launch. We had our first close in June at $750 million, which was nice for us, because that was bigger than our first fund and allowed us the luxury of taking our time to make sure we were getting to the right group of additional LPs that we wanted to bring in. By our final close in October, we were oversubscribed.
How was the fundraise for REP II different from the raise for REP I?
The first fund took about 18 months to raise, so it was a longer period of time and a lot more work. The biggest reason is that this time around we already had a base of investors, while REP I was a cold start and we had to educate the market on who we were. We built up a reputation and an investor base through REP I, which made things significantly easier for us in raising REP II. A vast majority of LPs from Fund I invested with us again in Fund II, along with a handful of new investors.
In what ways did your fund terms shift from REP I to REP II?
The terms of Fund I and the terms of Fund II are very similar. The GP made a substantial commitment to Fund I and an even larger commitment to Fund II. Actually, the GP is among the top four investors in REP II. That certainly resonates with investors from an alignment standpoint. It shows we’re really focused on the risk and return and driving attractive outcomes; that’s always important to folks and makes a big statement. We all have opportunities outside the firm from an investment standpoint, but if you see a GP leaning in, that means they have a lot of confidence in what they’re doing. This is a crowded market and there are a record number of funds being raised, so everything that you can do to stand out from the crowd in a differentiated or special way helps.
How did you communicate your message for REP II?
The things we were emphasizing this time I’m sure were a little bit different than what we emphasized last time, because some things are probably more important today than three or four years ago. One piece that’s a little bit different today is that we are more focused on the “hands on” aspect of driving value. We’re spending more time with our portfolio companies than ever before. For example, many of our strategic plans for our portfolio companies include M&A as a key driver of growth in today’s slow paced economy.
Fundamentally our business and strategies haven’t changed so our key messages haven’t changed. We have been together for more than two decades – our investment committee is comprised of eight people who have been working together an average of 19 years – and that level of continuity across a very strong team is unique in the middle market. We invest in four sectors and have a track record that corroborates that the people and the strategies actually work.
This article appeared in pfm’s The Modern Fundraiser magazine, published January 2016.