Better Late Than Never: Avista Closes Second Fund

Avista Capital Partners yesterday closed its second fund with $1.8 billion in commitments, after more than 15 months in market, peHUB has learned.

Following a first close on around $1 billion in August 2008, Avista basically sat on the sidelines while the financial world — and PE fundraising environment — collapsed around it. After gaining a fundraising extension in August 2009, the firm decided to tap the market again with a lowered target of around $2 billion (it had originally sought between $2.5 billion and $3 billion).

Thompson Dean, Avista’s co-CEO and co-managing partner, said the firm did not lower its target to merely appease LPs, but as a result of the dramatic changes in the market. “It was a reflection of reality,” he explained.

Avista did not bend on any of its terms or conditions, thanks to its steady return and luring of new investors.

Setting aside negative attention garnered for its failed investment in the Minneapolis Star-Tribune, Avista has earned a respectable 1.3x return from its $2 billion debut fund, which closed in 2006. That places the fund at the top of most returns data charts for the 2006-2007 vintage. Avista invested Fund I in 20 different companies and returned just under $500 million in capital through four different exits to date.

But the firm was hit by fundraising challenges nonetheless, and reaching out to new investors made the difference. Avista’s first fund was dominated by North American institutional investors, many of which are are in the process of reevaluating their alternative investment strategies. To replace that hole in its funding, Avista pursued money from sovereign wealth funds in Asia, as well as larger institutional funds in Europe and and Asia.

That doesn’t mean the firm has lost its US investor base. For example, Credit Suisse, which backed the firm’s first vehicle, committed to this one as well. That’s notable because Avista is a spinoff from DLJ Merchant Banking Partners and its fellow spin-off, Diamond Castle Partners, did not receive the a commitment from the former parent company.

Avista has deployed $600 million of its second fund to date.

Mercury Capital Advisors, the placement agent formed by former professionals with Merrill Lynch, placed the fund.