Vista eyes up to $2.5 bln for third small-cap fund

Vista Equity Partners has set a $2.5 billion cap on its third small-market fund, which is targeting $2 billion, according to a limited partner who has heard the pitch.

Vista’s Foundation Fund III targets investments in small and lower-middle-market enterprise software companies. It’s not exactly clear when the fund hit the market, though sources said it officially started fundraising earlier this year.

A spokesman for Vista Equity declined to comment.

If Vista hits the cap, it would represent a large jump from the second small-cap fund, which closed on $1.1 billion in 2013. Fund II generated a 1.05 total value multiple as of Dec. 31, 2015, according to performance information from the New Jersey Division of Investment.

One LP source who has heard the fund pitch said Vista has the ability to expand fund size because of past performance. Since 2009, the firm has invested $900 million in 15 small-cap deals, which have generated a gross internal rate of return of 51 percent and a multiple of 2.3x as of Sept. 30, 2015, according to documents from the Arkansas Teachers’ Retirement System.

Vista, led by Robert Smith, is targeting $8 billion for its sixth flagship fund. It  closed its fifth flagship fund on $5.8 billion in 2014. The firm also is targeting between $750 million and $1 billion for its second credit fund, after raising $200 million for the debut vehicle.

Vista’s Foundation Fund is led by Vince Burkett, Alan Cline, Rob Rogers, and Patrick Severson , according to Arkansas documents.

Foundation Fund III will charge a 2 percent management fee during the five-year investment period, and 2 percent of contributions net of distributions, write-offs and write-downs after the investment period expires, according to Arkansas documents. Arkansas committed $30 million to the fund earlier this year.

Fund III has an 8 percent preferred return hurdle and a 20 percent carried interest rate, Arkansas documents said. Carry ramps up to 30 percent if the fund generates a 3x or greater multiple on realized investments, the documents said.

Action Item: See the Arkansas Teachers’ pension report on Vista here: http://bit.ly/1S4bu1K

Photo of Robert Smith courtesy of Vista Equity Partners