Lone Star hits $7.4 bln target for Fund IX

Including contributions from insiders, commitments to the fund totaled $7.4 billion at closing, according to a person familiar with the situation. Lone Star disclosed a target of $7 billion for Fund IX in February, according to a Form D filing at the time. It raised $6.85 billion in commitments from 94 investors as of Aug 11, according to an amended Form D.

Lone Star had faced “prior key-man concerns” around Grayken, which have been “mitigated” by the naming of long-time executive André Collin as president in January, according to a memo to the Teachers’ Retirement System of Louisiana by Hamilton Lane, the pension fund’s advisory firm that recommended a $75 million commitment to the fund. Collin, who joined Loan Star in 2007, was formerly president of the Americas. Grayken founded Lone Star in 1995 with support from the Robert M. Bass Group.

“The promotion of Mr. Collin allows Mr. Grayken to focus on investment strategy and places Mr. Collin in a position to succeed Mr. Grayken should the need arise,” the memo said. “Nonetheless, Mr. Grayken will continue to devote 100 percent of his time to Lone Star activities.”

The question of a successor surfaced in 2007, when Ellis Short, former vice chairman, left the firm. The future leadership issue arose at a 2013 meeting with the Oregon Investment Council, a long-time backer of Lone Star. Last September, Oregon pledged $300 million to Lone Star Real Estate Partners III LP, which closed on $6.6 billion last year.

Meanwhile, the 2009 vintage Loan Star Fund VII turned in an IRR of 53.18 percent and an investment multiple of 1.68x for the Houston Firefighters’ Relief & Retirement Fund as of March 31, according to data from the pension system. The fund, which raised $4.6 billion, ranks as one of the top-performing funds from that vintage year, according to a review performance data by Buyouts.

The firm closed Lone Star Fund VIII in 2013 with about $5.1 billion in commitments, according to Thomson One.

The Hamilton Lane memo also pointed out that Lone Star positions itself as a firm that benefits from scale, with an “experienced and global transaction team” of 25 investment pros based in Dallas, New York, Washington, Montreal, London, Frankfort, Tokyo and Bermuda, along with in-house asset management and loan servicing units.

“By targeting large investments and pools of assets, the general partner seeks to act as a solutions provider to big banks and government entities seeking to dispose of problem portfolios, as well as limit competition by targeting portfolios that other firms do not have the capital to acquire,” according to Hamilton Lane. The memo also pointed out that Lone Star “leverages relationships created through executing prior investments to generate proprietary sourcing channels.”

Lone Star Fund IX aims to make equity investments of at least $100 million with a focus on distressed debt, with Europe expected to receive about 50 percent of its investments, the U.S. 40 percent and Japan 10 percent. Residential and corporate debt investments rank as the top property types expected in the fund.

Among the parameters for the fund: It is targeting 20 to 30 investments, with no more than 15 percent of the fund in a single investment, or up to 25 percent with approval by an advisory committee. Lone Star plans to make 10 to 20 investments per year with a targeted holding period of two to five years. Lone Star expects to take no more than three years to fully invest Fund IX, shorter than the customary period of five years in the industry.