07/22/2009

Charlesbank Campaign Runs Beyond Capacity

Fulfilling predictions that it would pull off one of today's rare marketing successes, Charlesbank Capital's latest buyout fund has attracted more commitments than it can accommodate.

The Boston firm sent a letter to investors about a week ago indicating that it had effectively finished raising money for its Charlesbank Equity Partners 7, and would hold a first and final close soon at a self-imposed equity ceiling of $1.5 billion.

That amount, which tops Charlesbank's target of $1.25 billion, could have been even higher. To stick to its capital-raising limit, the shop will have to accept less money from some investors than they hoped.

Limited partners are waiting for Charlesbank to finalize decisions about whether - and for many, by what degree - to trim their commitments. In some cases, the firm is expected to cap contributions from repeat backers to make room for new ones.

The strong demand for Charlesbank's fund is somewhat surprising, given the fact that even the most well-respected private equity firms have had troubled raising money amid the global financial crisis. But industry players were predicting a relatively brisk campaign for the firm, and insiders there said when marketing efforts began in April that they expected demand would exceed the vehicle's capacity.

Those projections were based largely on strong returns that Charlesbank has racked up since spinning off from Harvard Management in 1998. The firm started combining Harvard money with contributions from outsiders via the 2001 close of its $590 million Charlesbank Equity Partners 5, and went on to post a 35% rate of return through that vehicle as of Sept. 30.

The primary component of Fund 6, which held its final close in 2006 with $900 million, was returning 21.2% as of midyear 2008.

Charlesbank pursues buyouts and growth-capital investments in a range of sectors. Its new fund will likely put $50 million to $100 million of equity into each of its deals.

The firm's spinoff from Harvard Management, which runs money for its namesake university, was led by Kim Davis, Michael Eisenson, Tim Palmer and Mark Rosen. Harvard Management still owns a portion of the shop, and is a cornerstone backer. Other limited partners include AlpInvest, Massachusetts Pension Reserves, RCP Advisors and University of California Regents.