Vista Equity closes Fund IV on $3.5bn

Led by former Goldman Sachs executive Robert Smith, the firm was able to tout a strong track record and LP-friendly terms in the marketing of its fourth investment vehicle.

Vista Equity Partners has held a final close on $3.5 billion for its fourth fund after about a year of fundraising.

The hard-cap was $3.3 billion, but Fund IV's total also includes a $200 million commitment from the general partner, according to a person with knowledge of the matter. The San Francisco-based firm was able to add more than 30 new limited partners to the fund’s roster and all but four LPs re-upped from the prior fund. Existing LPs who increased their re-up commitments from the prior fund increased by an average of about 2.6x.

Existing LPs increasing the size of their commitments to new funds is significant as many LPs in today’s market have been cutting down the size of their pledges to new funds, even to those GPs with whom they have been long partners.

Vista has already invested about one-third of the capital in the fund.

Vista’s successful fundraise came from a combination of strong track record – about a 3.8x cash-on-cash return and a 46.5 percent internal rate of return over 11 years – and LP friendly fund terms, according to prior interviews with investors. Fund IV has a “European waterfall” style distribution under which the GP doesn’t start to collect carried interest until LPs are paid back all their capital plus a preferred return.

The firm also lowered its management fees from the prior fund, though it’s not clear by how much. The management fee on Fund IV is 1.5 percent during the investment period and 1.5 percent per annum of LP capital contributions for investments still in the portfolio, according to information from the New Jersey Division of Investment, an LP in the fund. Vista Equity is sharing 100 percent of any deal fees with LPs to offset the management fee, according to documents from New Jersey.

LPs that came into the fund in the first close with commitments of $200 million or more got even more of a break, with management fees of 1.25 percent.

Carried interest on the fund is set at 20 percent once all capital is returned plus an 8 percent preferred return; however, if the fund generates a realised return of 3x or more, the GP will collect 30 percent carried interest.

The firm’s prior fund was generating a 27.7 percent internal rate of return and a 2x investment multiple as of 30 September 2011, according to information from the California Public Employees’ Retirement System, an LP in the fund.

One investment highly touted by the firm’s LPs is that of Sunquest Information Systems. The firm reaped a 3.5x cash return on its partial sale of the healthcare software company, which it partially exited to Huntsman Gay Capital Partners, Credit Suisse and Neuberger Berman in 2010. Vista retained a 47 percent stake.

The Sunquest exit was highly pleasing to investors in the firm’s third fund because it returned all the capital that had been drawn from the fund at the time, about $700 million, according to a Vista LP. The firm has called $1 billion from Fund III and the Sunquest investment, once fully exited, is expected to return more than the entire amount of the fund, according to a person with knowledge of the investment. Two other investments in the fund are expected to generate similar returns, the person said.

Vista has announced several deals this year, including its £1.27 billion (€1.53 billion; $2 billion) acquisition of Misys, an application software and service provider for the financial industry. The firm also acquired Essential Learning, an interactive, e-learning provider, earlier this year.