WL Ross closes Fund V on $2.2bn

The firm, led by well-known turnaround investor Wilbur Ross, has closed its fifth fund after a long slog on the fundraising trail that included slashing its target in half.

WL Ross & Company has emerged from a tough fundraising campaign with about $2.2 billion, closing its fifth fund after cutting the target and convincing limited partners to sign on despite questions about team stability.

The firm raised Fund V through traditional limited partner commitments, separately managed accounts and funded co-investment commitments, the firm’s head, Wilbur Ross, told Private Equity International Thursday. The fund closed in June, Ross said.

Ross declined to provide details about the separate accounts and said fee levels and carried interest did not change from prior funds. WL Ross, which is owned by investment management firm Invesco, launched the fund in

Wilbur Ross

August 2010 with a $4 billion target. Fund V is already 44 percent invested and has had two small realisations, he said. Documents from the Oregon Investment Council as of 31 March showed the fund was generating a 1.08x multiple.

Despite consistenty performing in the first quartile (except for its third fund, which was second quartile, according to market sources), the challenging fundraising environment hindered Ross' marketing campaign. After a year in market, Ross had only collected about $450 million. Last year, the firm cut the target in half, got a fundraising extension from its LPs and sought to reassure investors on a major issue that had caused some potential backers to hesitate committing to the fund – stability of team.

Ross last year told investors he was on board for at least another five years. He sold his management company to Invesco in 2006 and gave up “substantial portions” of the economics of the firm in the sale; however, the investment team held on to the majority of the carried interest, according to documents from Oregon, an early backer of Fund V.

Despite LP concerns about firm leadership and stability, Ross had a succession plan in place to prepare for an orderly transition of management to the next generation.

The two events 'would amount to more or less a 2 percent hit to the economy and more importantly would destroy what little is left of consumer and business confidence'.

Wilbur Ross

Eventual transfer of leadership was dealt with at a high level through a succession planning group made up of Ross, David Storper, Steven Toy and James Lockhart. Lockhart joined WL Ross in 2009 from the Oversight Board of the Federal Housing Finance Agency, where he worked as director and chairman.

Earlier this year, Storper announced his intention of leaving the firm by the fall. Storper was not a key man in the funds, Ross confirmed in a prior email, but his loss was a blow to the strength of the firm’s bench of professionals.

Still, despite the long slog, Ross was able to hit a final close above the revised target. The firm uses a control strategy to invest in companies in bankruptcy or reorganisations, focusing on debt securities, distressed bank loans, trade claims and equity-linked securities. The average investment size is between $100 million and $200 million, though a “handful of outsized investments are to be expected”, according to Oregon pension fund documents.

The market should be rife with opportunities for turnaround investors because of debt chaos in Europe; if the US goes “over the fiscal cliff … there will be lots more [opportunity] in the US”, Ross said.

Two events at the start of next year could trigger a major downturn in the US, he said. The Bush-era tax cuts are set to expire, and automatic spending cuts put in place as part of the debt ceiling agreement by Congress will kick in at the same time, unless Congress acts.

The two events “would amount to more or less a 2 percent direct hit to the economy and more importantly would destroy what little is left of consumer and business confidence”, Ross said. “Under those circumstances our economy would move from being on the verge of recession to a full-fledge recession.”