H.I.G. Capital is betting it can find big value in struggling companies in the lower end of the market.
H.I.G. Bayside Loan Opportunity Fund IV, which is in the market targeting $1 billion, will invest in the senior debt of distressed smaller companies in the U.S. expected to undergo restructuring, according to an investment memo from the Maine Public Employees’ Retirement System. Maine PERS’ board approved a commitment of up to $50 million to Fund IV, pending negotiations.
Fund IV will target non-control investments in companies with enterprise values typically under $350 million, the documents said.
“The small-cap segment of the private equity market is very inefficient; this is because the size of investments is typically too small to attract the attention of investment banks and other financial intermediaries,” the investment memo said.
“H.I.G.’s long experience in the small-cap market and the significant resources the firm can devote to analyzing smaller companies allows it to take advantage of this inefficiency to generate superior risk-adjusted returns,” the memo said.
Fund IV will charge a 1.5 percent management fee on committed capital during the four year investment period, and 1.5 percent of invested capital after, according to a separate investment memo from Maine’s investment adviser Cliffwater.
H.I.G. is kicking in a 3 percent, or $30 million, GP commitment to Fund IV, according to Cliffwater’s memo.
The firm is raising Fund IV with some new faces on the leadership group. H.I.G.’s credit platform, which includes Bayside Capital and H.I.G. Whitehorse, is overall led by executive managing director John Bolduc. The credit platforms work closely together on investment opportunities, according to a person with knowledge of the firm.
The Bayside managing director group includes Jackson Craig, Ahmed Hamdani, Lionel Laurant, Duncan Priston, David Robbins, Adam Schimel, Sensu Serpen and Paul Triggiani.
This group has changed in recent years with the departures of several managing directors, including Sean Ozbolt, who left Bayside in May after nine years and joined Aurora Capital Group affiliate Aurora Resurgence in July as a partner.
Tiffany Kosch, who worked as a managing director at Bayside, left in 2012 to work at
energy-focused Peak Rock Capital. She left Peak Rock after less than two years and founded Mastiff Capital earlier this year, according to her LinkedIn profile.
Lewis Schoenwetter, a former managing director with Bayside, is listed on H.I.G.’s website as a managing director with affiliate H.I.G. Whitehorse. H.I.G. acquired the assets of WhiteHorse Capital, a CLO manager, in 2011 and formed H.I.G. WhiteHorse to provide financing to “profitable and performing” small and mid-market companies, according to the website. Appu Mundassery, another former managing director at Bayside who once led the group’s European activities, according to an archived version of H.I.G.’s website, remains on the credit team, according to the person with knowledge of the firm, though he is not listed on H.I.G.’s website.
Tim Eichenlaub worked as a managing director at Bayside for only about a year, from 2010 to 2011, before leaving to become chief credit officer at AloStar Bank of Commerce, according to his LinkedIn profile.
Maine made reference to managing director departures as one of the areas of concern of investing in the Bayside fund, but said some turnover is to be expected.
“H.I.G. has 59 managing directors in the firm, with approximately nine in the Bayside platform. H.I.G. is an organization driven primarily by the senior managing directors. While turnover at the more junior managing director level is not desired, it is not as impactful at H.I.G. as it might be at other organizations,” according to the Maine investment memo.
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