Clairvest’s Fund V expected to clean up in first close, raising 75% of target

A fresh breeze has been blowing in North America’s PE fundraising market of late, bringing relief to many investors with new offerings.

But it takes more than that to explain the success that Canadian private equity firm Clairvest Group has recently had marketing its fifth fund, Clairvest Equity Partners V LP (CEP V).

This week, Clairvest is expected to announce the first close of CEP V, raising at least 75% of the partnership’s $600 million hard-cap target, peHUB Canada has exclusively learned.

What’s more, Clairvest will have managed this feat in less than three months on the fundraising trail.

(Update: The first close of CEP V took place on May 1st. The fund raised $518 million, or 86% of its hard-cap target.)

CEP V’s outperformance will owe chiefly to existing LPs — pension funds, insurance companies, family offices and other institutional investors in Canada and the United States. Since the fund’s launch in late February, returning LPs have shown both a willingness and an ability to make larger commitments than they did in past funds, said Jeff Parr, a co-CEO and managing director at Clairvest.

“Fundraising has improved in part because of public markets,” he said. “A few years ago, institutional investors were over-allocated to alternatives, but with growth in public values they are currently under-allocated.” Parr said he believes that Clairvest, like other PE firms, has benefited from this trend, as it has from stronger exits that have produced stronger distribution streams.

Jeff ParrBut Parr also said he believes that CEP V has struck a chord with LPs for firm-specific reasons. These include Clairvest’s longevity, its track record, its strong GP team, and its steady, growth-focused investment strategy.

“Clairvest is one of Canada’s most established private equity investors, and Ken Rotman (co-CEO and managing director) and I have with our team been doing deals for 20 years,” he said. “When the firm was founded in 1987, it had a book value of $27 million. Today, that book value is approaching $400 million.”

In addition, Clairvest has one of the PE industry’s “deepest, strongest teams.” This has contributed to a 2.8x return on realized and substantially realized investments since 1994, he said.

LP confidence also has been inspired by Clairvest’s approach to issues of alignment and transparency.

CEP V will include a $180 million commitment from Clairvest. That is up 44% from the $125 million committed to CEP IV (2010), and will result in the firm holding roughly 30% of partnership capital. That is well above the industry standard for GP equity interests, which typically run 1% to 5% of a fund’s size.

“LPs are these days concerned about, and are looking for, clear alignment of interest with their fund partners,” said Parr. “There’s been a real shift in LP priorities.” He said he is convinced that recurring demand for Clairvest funds is to a large extent explained by the firm’s longstanding alignment practices.

While existing LPs will put CEP V within reach of its target, Clairvest still wants to expand its investor base. Parr said the firm is in discussions with several new LPs, and hopes to sign up three or four of them. However, he also told peHUB Canada that Clairvest will not consider raising its hard cap to accommodate higher commitments.

“Clairvest won’t grow beyond its sweet spot,” he said, which is focused on making growth investments in partnership with entrepreneurial, mid-market companies capable of becoming leaders in their sectors or becoming strategically significant players. The firm has found particular success in such core domain areas as equipment rental services, gaming and waste management.

With a larger fund, Clairvest plans instead to do more deals. CEP IV has so far completed 10 investments and is about 75% allocated. The new fund is likely to make its premiere investment later in 2014 — the first of an estimated 14 over CEP V’s lifetime.

The firm’s most recent platform investment was in Winters Bros Waste Systems, a U.S.-based solid waste collection, recycling and disposal company. A partner with Clairvest in past deals, Winter Bros received a US$28.5 million investment last November. The current portfolio also has seen 21 add-on acquisitions over the past year. These include Discovery Air’s buy of Advanced Training Systems International in December. Clairvest invested in the Etobicoke, Ontario-based specialty aviation company in 2011.

With headquarters in Toronto, Clairvest employs 23 investment pros and administrative staff and manages a capital pool of approximately $1.2 billion.

Photo of money bags courtesy of Shutterstock:

Photo of Jeff Parr courtesy of Clairvest Group