Crestline raising $500 mln for PE fund restructurings

Crestline Investors is wrapping up fundraising on a $500 million platform for private equity fund restructurings, according to limited partner memos.

Crestline Portfolio Financing Fund is expected to hold a final close on Feb. 1, according to the memos, which were prepared by consultant NEPC for San Bernardino County Employees’ Retirement Association.

The fund circled roughly $300 million from investors so far, according to a source with knowledge of the fund.

San Bernardino County’s investment committee on Jan. 16 approved a $50 million commitment, which the full board will consider at its next meeting, SBCERA spokesman Adam Sands said.

The fund is Crestline’s first dedicated vehicle for PE-fund restructurings, which typically involve an outside investor providing capital to general partners to support older investments or provide liquidity to their investors.

Crestline’s investments will take the form of loans or preferred equity, typically structured with covenants and collateralized with assets held through the borrower’s fund, according to the NEPC memos.

While the market for preferred equity-led fund restructurings remains relatively uncrowded, Crestline, Whitehorse Liquidity Partners and 17Capital are among the handful of firms to raise money for preferred equity deals.

Crestline launched its private equity fund credit and restructuring platform when it hired hired Amit Mahajan, formerly of Macquarie Asset Management, to co-lead the strategy with Managing Director David Philipp. The team invested $200 million of Crestline-controlled funds in four deals over the next eight months, a May news release from the firm says.

“Historically, we focused on funds that have underperformed and the LPs wanted a governance change or more resources and oversight,” Philipp told Buyouts in 2016.

“These financings are GP-led transactions. Usually the funds have done well, and managers are often in the carry. They have trust and a buy-in from LPs, but they don’t want to sell their portfolio companies now.”

Last year, Crestline led the restructuring of SunTx Capital Partners’ 16-year-old debut fund, which enabled the firm to provide liquidity to LPs while injecting its three remaining portfolio companies with growth capital, Buyouts reported. The four deals NEPC attributed to the team in its due-diligence report were grossing internal rates of return between 13.5 percent and 15.5 percent.

With its new platform, the firm is targeting net IRRs in the 10 percent to 14 percent range with its first dedicated fund, according to the NEPC memos.

Fund restructurings have become increasingly popular as the processes around the deals have become more streamlined. GP-led restructurings were widely expected to take up a higher proportion of private equity secondary market volume in 2017, according to a report prepared by Greenhill Cogent.

“We believe we are in a transition period where the types of GP-led deals are shifting from fund restructurings toward a greater focus on more LP-friendly tender-style process,” according to the Greenhill Cogent report.

“We anticipate the shift … will ultimately lead to a broader universe of GPs utilizing the secondary market to offer LPs liquidity alternatives.”

Action Item: For more on Crestline, visit www.crestlineinvestors.com

Waves crash against a dam as storm winds and a spring storm cross the country in Ostend, Belgium, on Jan. 13, 2017.  Photo courtesy Reuters/Yves Herman