BHMS, formed by ex-Morgan Stanley, KKR execs, raises debut fund

Raising a first-time fund is never easy, even in an ultra-strong fundraising environment, but one tried-and-true method is to build a track record deal by deal before embarking on the grueling fundraising trail.

That’s the strategy used by New York-based BHMS Investments, which closed its debut fund on $62.8 million in September. Fund I had a target range of $50 million to $75 million.

BHMS, formed by executives from Kohlberg Kravis Roberts and Morgan Stanley, completed six prefund deals since it was formed in 2010, using capital sources from a group of family offices.

One of the deals was an investment in insurance brokerage Hilb Group LLC, which grew after the investment by acquiring numerous smaller companies. ABRY Partners acquired Hilb Group in 2015, buying out BHMS’s stake.

That track record, along with the two partners’ pedigrees, surely helped the firm break through the substantial barriers to first-timers tapping the limited-partner community for capital. The investor base on the fund included a few institutions and wealthy families.

[Investing deal-by-deal] is a good way to go, but it’s really hard,” said Kevin Naughton, co-head of the Private Funds Group at Credit Suisse, which has no connection to the BHMS fundraising. “You have to be really committed to it, there’s a lot of sacrifice that goes into it, a lot of unknowns, there’s a lot of people that never graduate to be in the position to raise a traditional fund.

“But it’s probably the best way to go [for a new manager]. Cobble together some deals, get investors to know you and build a track record and when you put that together, institutional investors will take a longer, hard look,” Naughton said.

Fund I has made one investment so far. In March BHMS invested in Peter C. Foy & Associates Insurance Services. The firm also has another deal pending, though Managing Partner Robert Salamon declined to provide details of that transaction.

Managing Partners Kevin Angelis and Salamon formed BHMS in 2010 to focus on investments in business services, including healthcare services. BHMS is opportunistic and will look at special situations.

BHMS invests $10 million to $15 million of equity per deal and is targeting five to seven deals out of the first fund. Three of the firm’s six pre-fund deals fell into the special-situations categories, Salamon said.

Prior to forming BHMS, Angelis was at Morgan Stanley, investing in distressed debt and equity transactions. Before he left he was an executive director in the special-situations group. He also worked at Carlyle Group and American Capital.

Salamon, prior to BHMS, co-managed a $1.25 billion opportunistic value portfolio at KKR. He invested in public debt and equity using a long-term, private equity approach to public markets, according to his biography on the BHMS website. Before KKR, Salamon was an investment banker at JP Morgan.

Angelis chose the name BHMS because it was the former ticker symbol of Bethlehem Steel, Buyouts previously reported. His grandfather, whom he was close to, rolled steel for 40 years.

Bethlehem Steel was once the nation’s second largest steel producer before it filed Chapter 11 in 2001.

Update: This story has been updated to include quotes from Kevin Naughton of Credit Suisse.

Action Item: Check out BHMS’s Form ADV here: http://bit.ly/2yoEMpo

Moravian Academy students practice lacrosse with the blast furnaces of the now-closed Bethlehem Steel mill behind them in Bethlehem, Pennsylvania, on April 21, 2016. Photo courtesy Reuters/Brian Snyder