Vista closes third small-cap fund on $2.75bn – Exclusive

Vista Foundation Fund III charges three different levels of carried interest, depending on its return multiple.  

Vista Equity Partners has closed its third technology-focused small-cap buyout fund on $2.75 billion,  Private Equity International  has learned.

Vista Foundation Fund III closed above its $2.5 billion target last year, according to a source familiar with the matter.

The fund launched in February 2016,  as reported by  PEI .

Although the person did not specify the month of the final closing, it is likely that the fund closed in December after one of its limited partners, Houston Police Officers' Pension System,  voted at its 6 December investment committee meeting  to increase the sizes of this fund and Vista's sixth flagship fund, Vista Equity Partners Fund VI. The latter fund is  about to hold a close  on $10.5 billion – above its $8 billion target and $10 billion original hard-cap.

VFF III will target lower mid-market and mid-market companies in enterprise software, data and technology sectors with enterprise values of between $50 million and $400 million,  according to a fund commitment proposal  presented to the New Jersey State Investment Council in March 2016.

The fund has standard terms of a 2 percent management fee and an 8 percent preferred return. However, it offers three different levels of carried interest: a 20 percent carry if the performance is below a 2.5x multiple; 25 percent if the fund generates between 2.5x and 3.0x multiples; and 30 percent if it returns more than 3.0x multiple. There is also an offering of 100 percent fee offsets, the NJ SIC document showed.

LPs in the fund include NJ SIC, New York State Common Retirement Fund, Teacher Retirement System of Texas, State of Wisconsin Investment Board and San Francisco Employees' Retirement System, among others, according to PEI data.

VFF III did not use a placement agent, and consulted Kirkland & Ellis as the legal advisor.

The fund's predecessor, Vista Foundation Fund II, is a 2013-vintage that closed on $1.15 billion in 2013, more than double its $500 million target,  as previously reported by  PEI . It was generating a net internal rate of return of 6.8 percent as of June,  according to a fund commitment document  presented to the Los Angeles City Employees' Retirement System that month.

The first fund in the series, 2009-vintage Vista Foundation Fund I, was generating a net IRR of 43 percent as of 30 September 2015, according to the NJ SIC document.