Pegasus Partners Launch $500 Million Fund II –

Pegasus Partners this month launched its second buyout fund at the same time Joshua Brain, the firm’s co-founder, resigned.

The group is setting a target of $400 million for Pegasus Partners II, L.P. and will look to raise as much as $500 million, according to a Pegasus L.P. Should the firm meet its mark, it would be more than double the size of the $220 million Pegasus Partners, L.P. which the firm raised in 1997.

Craig Cogut, a co-founder of Apollo Management, L.P., formed Pegasus several years ago with Mr. Brain, who had worked as a lawyer and in restructuring companies. Partners at Pegasus did not return calls.

A Pegasus L.P. attributed the falling out between the founders to dissatisfaction with each other’s performance. Mr. Brain could not be reached for comment.

The firm has replaced Mr. Brain with Andrew Bursky, a founder and former managing director at Interlaken Capital, and David Uri, a former vice president at Jordan Cos. The additions boost the firm’s line-up to five professionals, including Mr. Cogut, Rodney Cohen and Jonathan Berger.

Pegasus, like Apollo, looks to invest in distressed companies. “They’ve got a ton of lawyers on staff who know how to restructure companies,” said a source familiar with the firm.

The group has quickly put its capital to work in the last year and is living up to the reputation of being a smaller version of Apollo Management, L.P. by developing creative financial structures.

In a contested investment this summer, for example, the firm paid $132 million to acquire 50% of G&G Stores from Petrie Retail, a bankrupt company.

The creditors’ committee at Petrie Retail objected to the sale because they claimed G&G President Jay Galin and his son, Chief Operating Officer Scott Galin, arranged the sale without consent and did not open up the bidding process. According to federal filings, the creditors accused the Galins of initiating the sale to Pegasus so they could retain positions and a 40% stake in the 415-unit chain.

However, the bankruptcy court approved the sale that closed Aug. 28. Petrie retained a 15% stake in G&G. E.M. Warburg, Pincus, & Co. LLC is the largest shareholder in Petrie Retail.

Limiteds that committed to the first Pegasus fund include Chancellor LGT Asset Management, GE Capital, Goldman, Sachs & Co. and Wilshire Associates.