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Z Capital to launch third fund in 2017

The firm has begun issuing primary documents for its next fund, which hasn’t officially launched yet, and will be seeking to raise more than twice the amount it targeted for its second fund.

Z Capital is targeting $1.25 billion for its third flagship fund, Z Capital Partners III, according to two people familiar with the matter.

One of the sources told Private Equity International that the fund hasn’t officially launched, and Illinois-based Z Capital just began sending letters to limited partners about plans to launch the fund.

This person added that the third fund will officially launch in 2017 and finish fundraising in the second quarter.

The Wall Street Journal first reported on the fund.

The same source also told PEI that, though the third fund has a different name than its two predecessors, Z Capital Partners III will follow the same special situation strategy of making about $100 million in equity investments in companies with an enterprise value of less than $1 billion.

The previous fund, Z Capital Special Situations Fund II, closed on $750 million in 2014, above its $500 million target, according to PEI data.

Investors in the second fund include the Massachusetts Bay Transportation Authority Retirement Fund, New Mexico Educational Retirement Board (NMERB), Producer-Writers Guild of America Pension Plan and the Terry Foundation.

According to NMERB’s private equity performance review from Q3 2015, Z Capital Special Situations Fund II was generating a 24.3 percent net internal rate of return since inception as of 30 September, 2015. 

Founded by collateralised loan obligations specialist Jim Zenni in 2006, Z Capital invests in diverse sectors such as automotive; consumer food; agriculture; consumer products; hotels, resorts and gaming; restaurants; and steel and metals, according to the firm’s website. Its portfolio includes slot machine-producer Affinity Gaming, electric fireplace manufacturer Twin-Star International and Mexican restaurant chain Pink Taco.

The firm, which manages about $2.3 billion in assets, declined to comment.

The source said Z Capital’s credit arm, Z Capital Credit Partners, launched its Credit Tactical Fund earlier this year. PEI data indicated the fund launched with a target of $400 million and hard-cap of $500 million. According to the source familiar with the fund, the fund closed on about $100 million earlier this month.